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- The number of stocks you should own depends on factors like time horizon, risk appetite, and your overall financial goals.
- While there is no “perfect” portfolio size, the generally agreed upon number is 20 to 30 stocks.
- When managing your portfolio, it’s important to consider a diversification strategy that mixes a variety of investments spread across asset classes and industries.
- Visit Insider’s Investing Reference library for more stories.
Investing in stocks can present a challenge, and curating a portfolio that suits your financial goals is no easy task. The number of stocks you should own depends on personal factors like your time horizon, risk appetite, and savings targets, which is why financial professionals don’t have an exact recommended number.
When it comes to the ideal number of stocks you should hold, diversity is a key piece of the puzzle. Diversification mitigates investment risk and can increase your chances of yielding a higher return, and experts note that it’s best to invest in a range of assets across different industries.
Let’s take a closer look at the value of diversification, how long-term versus short-term goals should lead to different investment approaches, and why market conditions should inform regular portfolio maintenance.
How many stocks should I have in my portfolio?
The exact number of stocks in your portfolio is a personal choice based on your knowledge, skills, and time horizon. Generally speaking, many sources say 20 to 30 stocks is an ideal range for most portfolios.
It’s important to strike a balance between investing in a diverse array of assets and ensuring that you have the time and resources to manage these investments. While there is no one-size-fits-all answer, Chris Graff, co-chief investment officer at RMB Capital, believes that somewhere between 20 and 30 stocks is necessary to achieve a minimum level of diversification.
Graff says that based on statistical analysis, financial experts believe that 20 is the minimum number of stocks necessary to see the benefits of portfolio diversification, and it's best to cap it at around 30 stocks. He adds that investors who go beyond 30 "usually don't see too much of an incremental benefit to increasing amounts of diversification."
Diversification allows you to capitalize on potential growth in one area without losing out too much if another plunges, since not all of your money is concentrated in that field.
"If they're in related industries, or let's say they're in the same supply chain and have business ties amongst each other, you don't get the same benefits from just that magic number," he says.
Why a diversified portfolio matters
Diversification, or spreading your money across multiple investments and investment types, ensures that your money stays safe if one or a few assets suddenly dip, since those in other industries can compensate for loss and maintain balance.
Investing in different asset classes, like stocks, bonds, and mutual funds, is only the beginning. You can and should diversify further, varying investments by sector, geographic location, and company size, among other factors.
According to Insider personal finance correspondent Tanza Loudenback, CPA, the type of stock matters more than the number in your portfolio. "Whether you own five stocks or 250 stocks, they should come from various industries and markets," says Loudenback.
"If someone owns five tech stocks, for example, they might be happy when Apple reports stellar earnings and their stock goes up. The Apple stock represents one-fifth of their portfolio and it makes a meaningful impact. But this goes both ways. If manufacturing on the next iPhone is interrupted and the Apple stock goes down, their portfolio is in jeopardy. The greater number of diverse stocks a portfolio has, the less impact one of those stocks has on the whole thing," she says.
The value of ETFs and mutual funds
ETFs and mutual funds offer long-term, cost-efficient ways to diversify, allowing investors to pool their money into a collection of assets run by a professional portfolio manager.
A single fund can add dozens of stocks to your portfolio, ensuring that the performance of one company represents a smaller share of your overall holdings, and thus does not threaten your portfolio to the same degree.
Graff says that the number of individual stocks within these funds counts towards your overall portfolio count, unless it's a very specific, niche fund that's focused on one corner of an industry.
"It may be the case that even if it has, you know, 50 companies in it, they all kind of behave the same way. That ETF may be thought of as one component of a portfolio," says Graff.
Tips to diversify your portfolio
When curating your portfolio, it's important to consider your investment time horizon, specific savings targets, and the fees that may accompany a managed portfolio.
- Consider time horizon: Time horizon influences risk appetite, with longer term goals generally allowing for more risk since liquidity isn't a major concern.
For example, a long-term goal like retirement planning makes room for some short-term volatility, allowing you to invest in riskier sectors like commodities or real estate. In contrast, short-term goals, like establishing a rainy day fund, come with a lower risk appetite and may lead you towards safer investments like bonds or money market funds.
- Maintain your portfolio regularly: Rebalancing your portfolio once or twice a year ensures that you're on track to reach your savings target as certain assets in your portfolio overperform or underperform. Know when it's time to trade by keeping track of your investments and broader market conditions.
- Be mindful of fees: If your portfolio is being managed by a professional, it likely comes along with fees, like commission or transaction fees. With a bigger portfolio size, these can add up, holding you back from reaching savings goals as quickly. Be sure to account for fees when creating a plan to save, and keep track of any changes in fee structure.
The financial takeaway
What matters more than the number of stocks in a portfolio is the diversity of your holdings, in terms of both asset class and industry.
Portfolio diversification helps lower investment risk and increases your chances of yielding a higher return, and it's best to invest in a range of assets across different companies, industries, and geographic areas.
Investing can be exciting and fun, but should be directed by an informed approach that considers factors like your investment time horizon and subsequent risk appetite, as well as specific savings targets and underlying fees.