Investing in stocks is a great way to grow wealth over time. Over the past 50 years, the stock market, as measured by the S&P 500, has rewarded long-term investors with an average annual 10% return (before inflation). So if you load your brokerage account with an S&P 500 index fund or similar investments, there's a chance that you, too, could snag a similar return over time.
Now, you'll often hear that it's really important to diversify your portfolio rather than invest in just a handful of stocks, or stocks within the same specific industry. But taking the concept of diversification to an extreme by holding hundreds of stocks isn't a good idea.
It's all about moderation
The logic behind diversification is simple. You want a nice array of stocks in your portfolio so that if a few companies you own falter, you have other investments that can pick up the slack.
Similarly, it may be that a particular segment of the market experiences its share of turbulence, such as the tech sector, which took a big hit in 2022. If you make a point to load your portfolio with stocks across a range of market sectors, you'll have more protection when one sector takes a beating.
But while it's definitely a good idea to own a few dozen stocks, you don't want to load up on too many. Stocks aren't an investment to set and forget. It's important to keep tabs on the companies you're invested in. And that's a hard thing to do 80 or 100 times over.
If you buy too many stocks, you might have a difficult time keeping up with all of them. That could put you at risk of hanging onto stocks you should really be considering dumping due to issues with the companies behind them.
What's the ideal number of stocks to aim for?
There's no single number of stocks that's optimal across the board, and a lot will depend on how much research you're willing to do. Remember, it's important to vet a stock before adding it to your portfolio. So if you're looking to build a collection of 45 stocks, you'll have to do research 45 times over.
For some context, the Motley Fool recommends owning at least 25 different stocks and says the average diversified portfolio contains between 20 and 30 stocks. You may decide that you'd like to own 36 different stocks, and that's not unreasonable. But a portfolio of 75 different stocks may prove to be unmanageable for you.
Of course, there's another option to look at when it comes to building a diversified portfolio, and it's to add ETFs, or exchange-traded funds, into the mix. When you buy shares of an ETF, what you're doing is adding a bunch of different stocks to your portfolio with a single investment, thereby saving yourself some legwork.
You might, for example, buy into an energy ETF, and that could spare you from having to research dozens of energy companies individually to determine which stocks to buy. Adding ETFs to your portfolio is a good bet if you're not quite certain your holdings are diversified enough, but you already own a few dozen stocks and want to limit the number you put into your portfolio.
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FAQs
If you buy too many stocks, you might have a difficult time keeping up with all of them. That could put you at risk of hanging onto stocks you should really be considering dumping due to issues with the companies behind them.
What happens if you buy too many stocks? ›
Over diversification is possible as some mutual funds have to own so many stocks (due to the large amount of cash they have) that it's difficult to outperform their benchmarks or indexes. Owning more stocks than necessary can take away the impact of large stock gains and limit your upside.
Is owning 200 stocks too much? ›
The danger of going overboard. Some investors do quite well for themselves by owning the same 15 stocks for decades. For others, owning 50 or 60 different stocks achieves similar results. And so technically, there's no hard and fast rule when it comes to the number of stocks you invest in.
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 30 stocks too many? ›
If individual stocks are to make up the majority (50% or more) of the equity part of your portfolio, then you should plan to own 25 to 30 stocks. At a min- imum, we recommend owning at least 15 stocks to avoid over-concentration in any single stock or sector.
What happens if you have too much stock? ›
Too much stock usually means you have low inventory turnover — your products aren't selling as quickly as you forecasted. Why are large amounts of inventory considered wasteful? Excess inventory doesn't last forever. Items will degrade and lose their value over time.
Is it bad to own a lot of stocks? ›
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 many stocks does Warren Buffett own? ›
Among the 47 stocks Berkshire Hathaway holds, the top 10 represent about 87% of the company's holdings. Here's a rundown of Buffett's 10 largest holdings based on Berkshire Hathaway's most recent 13F filing, filed May 15, 2024.
Is it OK to be 100% in stocks? ›
While stocks can offer high potential returns over the long term, they also carry significant risk. Putting all your eggs in one basket exposes your entire portfolio to potential losses, which can be devastating, especially for individuals with shorter investment horizons or those nearing retirement.
What is a good number of stocks to own? ›
The more equities you hold in your portfolio, the lower your unsystematic risk exposure. A portfolio of 10 or more stocks, particularly across various sectors or industries, is much less risky than a portfolio of only two stocks.
Imagine you wish to amass $3000 monthly from your investments, amounting to $36,000 annually. If you park your funds in a savings account offering a 2% annual interest rate, you'd need to inject roughly $1.8 million into the account.
What are the 10 best stocks to buy right now? ›
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| Company (ticker) | Analysts' consensus recommendation score | Analysts' consensus recommendation |
|---|
| ServiceNow (NOW) | 1.49 | Strong Buy |
| Assurant (AIZ) | 1.50 | Strong Buy |
| Howmet Aerospace (HWM) | 1.50 | Strong Buy |
| Insulet (PODD) | 1.50 | Strong Buy |
21 more rowsUnderstanding the Rule of 90
According to this rule, 90% of novice traders will experience significant losses within their first 90 days of trading, ultimately wiping out 90% of their initial capital.
What is the 20 rule in stocks? ›
In other words, the Rule of 20 suggests that markets may be fairly valued when the sum of the P/E ratio and the inflation rate equals 20. The stock market is deemed to be undervalued when the sum is below 20 and overvalued when the sum is above 20.
What is the 70 30 rule in stocks? ›
The rule of thumb advisors have traditionally urged investors to use, in terms of the percentage of stocks an investor should have in their portfolio; this equation suggests, for example, that a 30-year-old would hold 70% in stocks and 30% in bonds, while a 60-year-old would have 40% in stocks and 60% in bonds.
Is there a limit to how many stocks you can buy? ›
There is no universal limit on how many stocks an investor can purchase. However, companies may have rules in place that prevent traders from buying up a large number of shares. With all that in mind, you can buy as many shares as your budget allows. Be aware that there may be fees associated with your stock purchases.
Is 70 stocks too much? ›
The old rule about the best portfolio balance by age is that you should hold the percentage of stocks in your portfolio that is equal to 100 minus your age. So a 30-year-old investor should hold 70% of their portfolio in stocks. This should change as the investor gets older.
Is 100% stocks a bad idea? ›
The research by three U.S. finance professors led by University of Arizona professor Scott Cederberg comes to the surprising conclusion that a portfolio holding 100% stocks and no bonds is best, even for people already in retirement.
Should I take all my money out of stocks? ›
Unlike the rapidly dwindling balance in your brokerage account, cash will still be in your pocket or in your bank account in the morning. However, while moving to cash might feel good mentally and help you avoid short-term stock market volatility, it is unlikely to be a wise move over the long term.
