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Question: How many stocks should I own in my portfolio to ensure that I’m properly diversified?
Answer: This is an excellent question and touches on some important concepts for newer investors to learn. If you own too few stocks, your portfolio will not be well-diversified, and your returns will be far too dependent on any one stock’s performance. On the other hand, if you own too many stocks, great performance from one or two won’t make much of a difference to your returns and you might as well invest in mutual funds instead.
Unfortunately, there’s no great answer to this question, and financial professionals often have differing opinions. Personally, I suggest at least 10-15 stocks in your long-term investment portfolio, and 20-30 seems to be an ideal amount.
Having said that, there are some questions that may be even more important than the number of stocks in your portfolio. For instance:
Are your stocks spread across a variety of different industries, or are you highly levered to one type of business? You could own 50 stocks, but if they’re all banks, you aren’t really diversified at all.
Regardless of the number of stocks you own, do you have too much money invested in any one of them? If you own 30 stocks, but 50 percent of your money is in your three largest holdings, you may want to spread it out a bit.
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