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
Too many stocks can often lead to fewer gains, according to his experience. Cramer learned this lesson while working at his hedge fund years ago. He observed that his portfolio's performance was linked to the number of stocks he held. The fewer stocks he had, the more money he made, Cramer said.
What happens if you buy all the stock? ›
Yes, if you could buy all 200k shares you would own the company. You won't be able to buy that many, though. Just because they are outstanding doesn't mean they are for sale. You will also see the price rise while you are trying to accumulate your position.
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.
What does Cramer mean by buy and homework? ›
Jim Cramer said investors should gain as much knowledge about their portfolios as possible. That means listening to earnings call with investors, looking at financials, reading research reports and corporate news. “
Are 100% stocks too risky? ›
An internationally diversified portfolio of stocks turned out to be the least risky strategy, both before and after retirement, even though a 100% stock portfolio did expose couples to the greatest risk of a drop in wealth that may be temporary or last several years.
Is 10 stocks a good portfolio? ›
A portfolio of 10 or more stocks, particularly those across various sectors or industries, is much less risky than a portfolio of only two stocks.
What happens if nobody buys a stock? ›
When there are no buyers, you can't sell your shares—you'll be stuck with them until there is some buying interest from other investors. A buyer could pop in a few seconds, or it could take minutes, days, or even weeks in the case of very thinly traded stocks.
Do you own the company if you buy enough stocks? ›
As an investor in a company, you own a portion of the company (no matter how small that portion is); however, this doesn't mean that you own property of the company.
How much money can you make from stocks in a month? ›
Well, there is no limit to how much you can make from stocks in a month. The money you can make by trading can run into thousands, lakhs, or even higher. A few key things that intraday profits depend on: How much capital are you putting in the markets daily?
How much money do I need to invest to make $1000 a month? ›
A stock portfolio focused on dividends can generate $1,000 per month or more in perpetual passive income, Mircea Iosif wrote on Medium. “For example, at a 4% dividend yield, you would need a portfolio worth $300,000.
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.
Is it OK to have 100% stocks in my portfolio? ›
Key Takeaways. Some people advocate putting all of your portfolio into stocks, which, though riskier than bonds, outperform bonds in the long run. This argument ignores investor psychology, which leads many people to sell stocks at the worst time—when they are down sharply.
How did Jim Cramer make his money? ›
Cramer and Peretz founded TheStreet.com, a financial analysis website, in 1996. In 2000 Cramer left the hedge fund, which regularly earned him more than $10 million annually, and the following year he began hosting a syndicated radio show, Jim Cramer's RealMoney. Mad Money debuted in 2005.
What is a homework strategy? ›
Try creating a homework schedule and set a specific time and place for your child to get homework done. Use a timer to help your child stay on track and get a better sense of time. Learn about trouble with planning.
Is owning 30 stocks too much? ›
An unlucky selection of 20-30 stocks can massively underperform other luckier choices over 25 years. To mitigate that risk, a long-term investor should be more aggressive in diversifying the portfolio and hold more stocks than the number suggested by a static one-period risk model.
Is 20 stocks too much? ›
Diversification is good, but too much of it can be bad. So, what's the final number? The average diversified portfolio contains between 20 and 30 stocks.
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.
How many stocks is too many to hold? ›
Ensemble Capital believes that around 25 stocks is the level at which an additional stock provides little additional diversification benefit. I have been involved professionally both with more concentrated professional portfolios and with wider ones.
