How many stocks should you have in your portfolio?

Julie Brownlee, Fsp Invest, 01 Oct. 2015

Tags: stocks, number of stocks to invest in, number of shares to buy, how many stocks to hold, investing in shares, portfolio management,

When investing in shares, it’s important to hold a selection of different shares in different sectors.

So how many stocks should you actually own?

Let’s take a closer look…

Why the number of stocks you hold makes a difference

Now ten might not sound like many stocks to have in your portfolio, but a minimum of ten different stocks is a good number to aim for.

This is because you benefit from diversification and reducing your risk. By investing in more than ten stocks, the difference to the risk you take on doesn’t make much difference.

The risk in your investment portfolio comes down to how much the shares you own bounce about in value on a daily basis. In other words, volatility.

A number of factors have an impact on volatility. The number of stocks you own does make a difference. You need to consider how volatile each share is and how much your shares move in the same direction at the same time.

The link between risk and the number of stocks you hold

If you study this in your portfolio, you’ll get the standard deviation of your portfolio, the experts at Money Week explain. This is a gauge of their volatility.

If you have one stock with a standard deviation of 25 and add another stock in a different sector, the standard deviation drops to 20.2

If you have five stocks, the standard deviation falls to 16.6. Have ten stocks and the standard deviation drops to 15.2.

Add a lot more shares and the impact isn’t as great on the standard deviation. For instance, owning 100 stocks would only bring the standard deviation down to 13.9.

With this in mind, aim to hold at least ten stocks in your portfolio in a mix of different sectors. You’ll benefit from reducing your risk in terms of portfolio volatility. And don’t hold more than 25 to 30 stocks at one time.

So there you have it. How many stocks you should have in your portfolio.

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