Blog / How Many Stocks Should I Own When Building A Portfolio?

How Many Stocks Should I Own When Building A Portfolio?

Introduction

One of the most asked questions I receive from investors is: how many stocks should I own/hold in my portfolio?  Or, they might ask: how diversified should my portfolio be?  On the flip side, I have had investors tell me that they would not be comfortable owning less than 50 stocks.  I even had some say that they wanted at least 150 stocks in their portfolio.  Frankly, I do not believe there is a “correct” or right answer to those questions.  Similarly, I do not think people who are suggesting they need a lot of stocks in their portfolio are wrong either.

On the other hand, there are some practical and/or mathematical realities that investors can use as guides.  For example, what about weightings.  Should you overweight certain stocks and underweight others?  Recent academic studies suggest that once you get past 16 stocks you have used up most of the benefit of diversification.  Other studies indicate that a portfolio of approximately 30 stocks is optimum.  Personally, I believe the right number is heavily predicated on the psychology and risk profile of the individual building the portfolio.  People who are very risk-averse would need more stocks versus people who had a higher tolerance for risk.

Nevertheless, there are many approaches that can be taken and/or implemented to build a portfolio that is just right for you.  Although I am sharing only a couple of examples with this video, the options are virtually endless.  Therefore, with this video I am simply encouraging you to think about your options without overthinking it.  Furthermore, the number of holdings is far from the only consideration of risk that investors should worry about.  Other things such as opportunity cost, the investor’s specific needs, and of course my favorite relative valuation of stocks that you might be considering.

In the video I will be covering Lithia Motors (LAD), Trex (TREX), Netflix (NFLX), Tencent Holdings (TCEHY), Ulta Beauty (ULTA), and S&P 500 (^SPX).

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Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.