You’ll often hear that the key to being a successful investor is maintaining a diverse portfolio. And for the most part, owning six or seven different stocks won’t get you there.
Rather, as a general rule, it’s a good idea to hand-pick at least a dozen stocks for your portfolio. And you may want to aim for 20 to 30 stocks for an even more diverse mix.
But at some point, you may end up owning far more stocks than that. The question is: Is there really such a thing as investing in too many stocks?
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.
You may find the idea of owning 25 different stocks overwhelming, while another investor manages a portfolio of 45 stocks without issue. As such, the decision to own more stocks versus fewer really boils down to the amount of time and effort you’re willing to put into your portfolio.
Buying stocks isn’t something you should do on a whim. Rather, it’s important to research each individual company you’re looking to invest in.
If you’re willing and able to do that 50 or 60 times over, then you can go ahead and buy 50 or 60 different stocks. But if you’d rather not put in that legwork, then there’s certainly no reason to push yourself to own that many.
Another thing to keep in mind is that the more stocks you put into your portfolio, the more companies you’ll need to keep tabs on year after year. So if you don’t feel that a 50-stock portfolio is too clunky to manage, then there’s no reason not to own 50 different stocks if each fits in nicely with your investing strategy.
An easier way to diversify
Owning a larger number of stocks could buy you some protection in the event of a stock market crash. It could also lead to nice growth in your portfolio. But if the idea of having to research and track a host of different companies overwhelms you, you may want to take a different approach to diversifying — namely, by loading up on broad market exchange-traded funds (ETFs) instead.
The benefit of owning exchange-traded funds is that a single investment will put a bunch of different stocks into your portfolio — only without you having to research each one. In fact, when you buy ETFs, you get no say over how those funds are invested. And that could be a good thing if you’re looking for a quick way to build a portfolio without sinking in a lot of time.
Strike that balance
Diversifying your investments is an important step to take on the road to growing wealth. That doesn’t mean you need to go out and purchase dozens upon dozens of different stocks. But if you want to own 50 or 60 stocks, go for it, provided you’re willing to put in the time and that all of those companies make sense for you.
That said, if you reach the point where you own so many stocks you can’t keep tabs on them, then you might consider whittling your holdings down. If 12 stocks in your portfolio consistently underperform, and you’re too loaded up with different investments to realize that, then your larger mix of stocks won’t end up doing you any good. If anything, it could end up pushing you further away from your goals.
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