Investing is crucial to building a financially sound future. Whether you’re a newbie investor or an experienced one, the question – ‘How many stocks should I own?’ pops up often. The answer, however, is not that simple. There is no one-fit-all answer to this question, but there are a few things you should consider before you start investing. The last thing you want is to have more stocks or too few stocks and end up making the wrong investment decisions. In this blog post, we will guide you through the process of carefully crafting your portfolio, so that you make smart investment choices and take your portfolio to the next level.
Define Your Investment Goals
Before you decide on the number of stocks that’ll go in your portfolio, you should define your investment goals. Your investment goals can range from earning a top-level return to maintaining sustainability to minimizing tax bills, depending on your risk tolerance, age, and financial situation. An investment goal will give you a clear idea of how you want your stock portfolio to grow, giving you a clear answer to how many stocks you should own to meet your investment goals.
The Rule of 15 Stocks
While there is no one-size-fits-all strategy for constructing a portfolio, many financial experts advocate that holding between 15-20 stocks is ideal. This is perfect for investors who are neither too conservative nor too aggressive. Holding too many stocks can result in higher expenses payable to fulfill differing investment goals, which can ultimately affect your portfolio’s overall performance. Similarly, holding too few will expose you to greater risk, as the performance of an individual stock will impact the portfolio’s overall returns.
Diversification is Key
The phrase “don’t put all your eggs in one basket” applies to investing too. Diversification is an essential factor that will ensure your portfolio’s success. Portfolio diversification means adding different types of assets such as bonds, real estate, and commodities. It can also mean investing in different sectors or industries; for instance, if you have investments in technology, make sure to add investments in healthcare or consumer staples to balance the risk. The beauty of diversification is that it protects your portfolio from market fluctuations.
Your Experience & Time Investment
Before deciding on the number of stocks, consider your investment experience and the time you’re willing to put into researching and managing your investments. New investors should start with a smaller number of stocks and gradually work their way up as they become more comfortable with investing. Similarly, if you have limited time, you should consider owning fewer stocks and investing in mutual funds or ETFs. If you’re an active and seasoned investor with the time and resources to manage multiple stocks thoroughly, then owning a more extensive list of stocks would be more suitable.
Risk Tolerance Matters
Investing is risky and comes with a guarantee of uncertainty. Suppose you’re willing to take on more risk or have a higher risk tolerance level. In that case, you may consider including stocks that are more volatile or have a higher level of unpredictability. On the other hand, if you’re risk-averse and prefer a more stable and predictable portfolio, consider adding stocks with a lower level of volatility.
Seeking Professional Advice
Investing in the stock market can be intimidating for beginners. You may invest your money only to find that your portfolio performs poorly. For this reason, seeking professional advice is helpful. A financial advisor can provide you with tailored advice on how to build and manage your investment portfolio. They provide the technical knowledge and experience to identify growing opportunities, provide market insights, and help manage your portfolio based on your financial goals. If you’re a long-term investor with a relatively low risk tolerance, most financial advisors recommend diversifying your portfolio by investing in at least 10 to 20 different companies. This will help to reduce overall risk and ensure that you’re not too heavily invested in any one company.
In conclusion, there is no magic number of stocks for every investor as there are a lot of factors to consider, such as the number of stocks you own, investment goals, risk tolerance, experience, diversification, and seeking professional advice. Nevertheless, keeping in mind the mentioned factors can help you organize and manage your portfolio more efficiently. At the end of the day, your investment portfolio should align with your investment goals, risk tolerance, and financial situation. Stay vigilant with your investment moves and actions as times pass.
Are you unsure about the right number of stocks to include in your investment portfolio? Let our team of financial experts assist you in reaching your investment objectives. We can help you develop an investment portfolio that aligns with your financial situation, risk tolerance, and investment goals. Contact us today!