When building an investment portfolio, one of the most common questions is: “How many stocks should a portfolio have?” The answer isn’t one-size-fits-all, and it depends on several factors, including portfolio size, investment goals, and risk tolerance. In this article, we’ll explore various perspectives on portfolio diversification and provide insights into how many stocks may be appropriate for your investment strategy. 1
The Importance of Diversification
Diversification can be a fundamental principle of investing. By spreading investments across multiple assets, you can reduce the impact of any single stock’s poor performance on your overall portfolio. The idea is simple: don’t put all your eggs in one basket. But how many “baskets” are enough?
General Guidelines for Stock Holdings
- For Smaller Portfolios (Below $1M): If your portfolio is under $1 million, it may be wise to focus on Exchange-Traded Funds (ETFs) or mutual funds instead of individual stocks. ETFs provide built-in diversification and can include hundreds or even thousands of stocks, making them an efficient way to achieve broad exposure to the market. This strategy minimizes risk and lowers costs associated with managing individual stock positions.
- For Larger Portfolios ($1M to $5M): Once your portfolio grows beyond the $1 million mark, you may begin to consider holding individual stocks. However, maintaining between 60 to 100 stocks can provide ample diversification without the risk of over-concentration. At this level, you have the flexibility to mix ETFs and individual stocks, balancing diversification and personalized investment strategies.
- For High Net-Worth Portfolios ($5M to $20M): For those with significant wealth—between $5 million to $20 million—it can often make sense to transition away from ETFs and mutual funds. Instead, purchasing individual stocks 3 can be more cost-effective, as you can avoid management fees associated with ETFs and mutual funds. At this level, portfolios can be more concentrated, focusing on 60 or fewer stocks, depending on your financial goals and risk tolerance.
Why Portfolio Size Matters
The size of your portfolio can significantly impact your investment strategy. For smaller portfolios, the priority could be achieving broad diversification at a lower cost, which is why ETFs can be recommended. As the portfolio grows, the focus can shift towards customization and fee efficiency. Wealthier investors can afford to hold fewer stocks and still achieve diversification because they can allocate larger sums to each position, reducing the impact of transaction costs.
The Role of a Wealth Manager
While these guidelines provide a starting point, every investor’s situation is unique. Factors like your investment horizon, risk tolerance, tax considerations, and financial goals should influence your portfolio structure. Consulting with a wealth manager can help you navigate these complexities and tailor your portfolio to meet your specific needs.
At Stonewater Financial, we understand that effective portfolio management requires a personalized approach. Whether you’re just starting with your first investment or managing a substantial portfolio, our team of experienced advisors can help you make informed decisions.
Contact us today to schedule a consultation and discover how you can strive or seek to maximize your investment strategy.
Ready to take the next step? Reach out to a wealth manager at Stonewater Financial to find the right balance for your investment portfolio. Every financial journey is unique—make sure yours is guided by expertise and personalized advice.
Disclosures:
- There is no guarantee that a diversified portfolio will enhance overall returns or will outperform a non-diversified portfolio.
- ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETF’s net asset value.
- Stock investing includes risks, including fluctuating prices and loss of principal.
