Stock investing is a game everyone wants to play. The more time you spend on seeing where a ticker is going, the more Adrenalin rush you get. But have you analysed how much or how many shares to buy?
But how many stocks should you own ? How many stocks can you follow at a time ? How many of them would you essentially pick, track and hope to make a profit on ?
Is, “the more, the merrier” a good strategy for an ordinary investor ?
Example
Let’s see an example.
Suppose you have Rs 10,000/- with you to invest. You decide to pick up 5 shares and you put in Rs 2,000/- in each of them. (Ok, I get it, but for a moment let’s leave aside brokerage). Suppose one of these 5 doubled in investment while the others stayed where they were. Your portfolio would grow to Rs 12,000/. This is a return of 20%.
What would have happened had you bought just two shares, each for Rs 5,000/- and one of them doubled. Your total portfolio would be Rs 15,000/-, giving you a return of 50%.
What this leads to is simple : One can never make stash by spreading money thinly over a large number of stocks. Diversification is not achieved by holding a large quantity but a less quantity of good quality stocks. How many stocks you own is important for your portfolio.
How many shares to buy?
So how many stocks are good enough ? I would say this is also related to the amount of money to be invested. With an amount of say Rs 2,00,000/-, I would recommend, around 5 stocks with Rs 40,000/- in each.
With a huge amount of money, how many stocks you own can go up to 15. It’s suggested that if your portfolio holds beyond 20 stocks, it’s time you take a hard look at what you have and offload some of them.
The art of making money from stocks is possible if you invest time in going through the financials of the company, reading through the annual reports and past performances of the company. The more stocks you own, the more time you spend in reviewing them and with a large basket, that is not sustainable at all.
One is better off with a small quantity but good quality of stocks.
Also remember that, you should curtail your investment into a particular share at 5-10% of your total investment. Investing a large portion in one single stock could give a kicker of returns if the value of that stock doubles, however, if it were to tank, a significant portion of your investment could be eroded.
To sum up, keep the following in mind when you are confused about how many stocks you should own :
- Before you invest in stocks, make sure you have the ability of picking the right ones.
- Don’t go shopping shares in the guise of diversification. A max of 15 or 20 in your portfolio will suffice.
- A single stock should potentially hold around 5-10% of your portfolio value.
- Ask yourself how many stocks you have in your portfolio. Clear out the dud ones.
Hope you liked the this small discussion onHow many shares to buy? Hope you found the right answer. Share your views below in the comments section.
FAQs
“Most research suggests the right number of stocks to hold in a diversified portfolio is 25 to 30 companies,” adds Jonathan Thomas, private wealth advisor at LVW Advisors.
How many shares should be in a portfolio? ›
Some experts recommend keeping a minimum of 20 and a maximum of 60 stocks in your portfolio. However, you should analyze your goals first to pick a figure for yourself.
What is the optimal number of shares in a portfolio? ›
Determining the 'optimal' number of stocks to hold is a crucial consideration when diversifying your stock portfolio. While there isn't a one-size-fits-all answer, experts generally suggest that holding around 20-30 individual stocks can balance effective risk diversification and manageability.
How many stocks are needed for a diversified portfolio? ›
We recommend owning a minimum of 15 stocks to reduce the volatility of returns in your overall portfolio. Diversify by Investment Category – Follow the portfolio objective's target recommendation for the proper mix of stocks within the Growth & Income, Growth, and Aggressive categories.
Is 35 stocks too many for a portfolio? ›
Private investors with limited time may not want to have this many, but 25-35 stocks is a popular level for many successful investors (for example, Terry Smith) who run what are generally regarded as relatively high concentration portfolios. This bent towards a 30-odd stock portfolio has many proponents.
Is 5 stocks enough for a portfolio? ›
A portfolio of 10 or more stocks, particularly those across various sectors or industries, is much less risky than a portfolio of only two stocks.
How many shares should a beginner buy? ›
Most experts tell beginners that if you're going to invest in individual stocks, you should ultimately try to have at least 10 to 15 different stocks in your portfolio to properly diversify your holdings.
How much do I need to invest to make $1000 a month? ›
A stock portfolio focused on dividends can generate $1,000 per month or more in perpetual passive income, Mircea Iosif wrote on Medium. “For example, at a 4% dividend yield, you would need a portfolio worth $300,000.
Is owning 100 stocks too many? ›
It's a good idea to own a few dozen stocks to maintain a diversified portfolio. If you load up on too many stocks, you might struggle to keep tabs on all of them. Buying ETFs can be a good way to diversify without adding too much work for yourself.
How much of my portfolio should be in individual stocks? ›
There is no set definition for what makes a concentrated position. When an investment in a single stock represents more than 5% of a portfolio, T. Rowe Price advisors consider it to be worth addressing. Once a holding exceeds 10%, however, it represents a greater risk that requires more immediate planning.
Buffett's company Berkshire Hathaway (BRK. A, BRK.B) publicly discloses its top stock holdings quarterly, giving you a glimpse behind the curtain to see the stock portfolio of one of the world's greatest investors. Among the 47 stocks Berkshire Hathaway holds, the top 10 represent about 84% of the company's holdings.
How much of my portfolio should be in US stocks? ›
Stock allocations by age
Investors in their 20s, 30s and 40s all maintain about a 41% allocation of U.S. stocks and 9% allocation of international stocks in their financial portfolios. Investors in their 50s and 60s keep between 35% and 39% of their portfolio assets in U.S. stocks and about 8% in international stocks.
What is the Warren Buffett Rule? ›
The Buffett Rule is the basic principle that no household making over $1 million annually should pay a smaller share of their income in taxes than middle-class families pay.
What is the ideal number of stocks to have in a portfolio? ›
How many different stocks should you own? The average diversified portfolio holds between 20 and 30 stocks. The Motley Fool's position is that investors should own at least 25 different stocks.
What does Warren Buffett say about diversification? ›
“Diversification is a protection against ignorance,” Buffett said. “I mean, if you want to make sure that nothing bad happens to you relative to the market… There's nothing wrong with that. That's a perfectly sound approach for somebody who does not feel they know how to analyze businesses.”
How much of my portfolio should be in stocks? ›
Stock allocations by age
Investors in their 20s, 30s and 40s all maintain about a 41% allocation of U.S. stocks and 9% allocation of international stocks in their financial portfolios. Investors in their 50s and 60s keep between 35% and 39% of their portfolio assets in U.S. stocks and about 8% in international stocks.
Is it OK to have 100% stocks in my portfolio? ›
The Bottom Line
While stocks play a crucial role in a well-diversified investment portfolio, putting all your money into equities is a risky proposition fraught with potential perils.
