Finding Your Perfect Stock Count: What is a Good Number of Stocks to Own?

Have you ever stared at your investment account wondering if you’re holding too many stocks – or not enough? You’re not alone in this dilemma. As someone who’s navigated these waters for years, I can tell you that finding your “magic number” is both an art and a science.

The Short Answer: 10+ Stocks Across Different Sectors

If you’re looking for the quick answer – most experts agree that owning at least 10 stocks across different sectors provides significant diversification benefits. But the full answer depends on your personal situation, goals, and how much time you want to spend managing your investments.

Why Diversification Matters So Much

Let me tell you why I’m obsessed with proper diversification. When you diversify your portfolio you’re essentially protecting yourself from what financial nerds call “unsystematic risk” – the risks associated with individual companies or industries.

Here’s what you need to know

• Unsystematic risk can be nearly eliminated through proper diversification
• A well-diversified portfolio can maintain the same expected returns while reducing risk
• You don’t get rewarded with higher returns for taking on unsystematic risk

Modern portfolio theory (which sounds fancy but is actually pretty logical) shows that spreading your investments across enough different stocks can effectively reduce company-specific risks to almost zero. This is kinda like not putting all your eggs in one basket, but with mathematical backing!

The Magic Number Debate

So exactly how many stocks do you need? Honestly, there’s no perfect consensus, but research points to some reasonable guidelines.

Academic studies suggest that most of the diversification benefits come from the first 10-20 stocks in your portfolio After about 20 stocks, the marginal benefit of adding one more company starts to diminish pretty quickly

Let’s break it down:

• 1-5 stocks: Extremely high unsystematic risk
• 10-15 stocks: Significant reduction in portfolio risk
• 20-30 stocks: Most of the diversification benefits achieved
• 30+ stocks: Minimal additional risk reduction

I started with just 3 stocks when I first began investing (big mistake!) and learned the hard way when one company tanked and dragged down my whole portfolio. Now I keep at least 15 in my personal account.

Quality Over Quantity

Something important to remember – it’s not just about having a certain NUMBER of stocks. It’s about having the RIGHT stocks that don’t all move in the same direction together.

Having 20 tech stocks doesn’t give you true diversification. You need exposure across different:

• Industry sectors
• Company sizes (market caps)
• Geographic regions
• Growth vs. value characteristics

The ETF Shortcut: Instant Diversification

Here’s a time-saving tip that’s changed my investing approach. If researching, selecting, and tracking numerous individual stocks sounds exhausting (and let’s be honest, it can be), exchange-traded funds (ETFs) are your new best friend.

With a single ETF purchase, you can own hundreds or even thousands of stocks. For example:

• An S&P 500 ETF gives you ownership in 500 large US companies
• A total stock market ETF might include 3,000+ companies
• A single international ETF can expose you to global markets

This approach is especially brilliant if you’ve got limited funds. Even with just $10,000, you could potentially gain exposure to thousands of stocks through ETFs! This is why many investors (including myself) have shifted toward an ETF-heavy approach.

Age-Based Portfolio Construction

Your age and time horizon should influence not just how many stocks you own, but how much of your portfolio should be in stocks versus bonds.

Here’s a general guideline many financial advisors suggest:

I personally follow this approach with some tweaks – I’m in my 40s but keep about 75% in stocks because I have a higher risk tolerance than average.

Risk Tolerance Adjustments

Your ideal number of stocks also depends on your personal comfort with volatility. If market swings keep you up at night, you might want:

• More stocks for greater diversification
• A higher percentage of bonds for stability
• Low-volatility ETFs rather than individual stocks

My neighbor John has just 7 stocks but sleeps like a baby during market crashes. Meanwhile, I need at least 15 plus some bond ETFs to feel comfortable. Everyone’s different!

The Cost Factor

One practical consideration that used to limit diversification was transaction costs. Buying 30+ individual stocks meant paying hefty commissions that ate into returns.

Today, that barrier has largely disappeared:

• Many brokerages offer commission-free trading
• Fractional shares allow you to buy small pieces of expensive stocks
• ETFs provide broad exposure with a single transaction fee

This is why more recent research suggests investors can practically hold as many stocks as they want. The limiting factor is now mostly your time and attention span, not costs.

The Time-Cost Fallacy

Here’s something interesting I’ve noticed in my own investing journey. Having MORE stocks doesn’t necessarily mean spending MORE time managing your portfolio.

In fact, I’ve found the opposite can be true. With fewer stocks, you might be tempted to obsessively track each one. With a broader portfolio or ETFs, you can focus on overall asset allocation and rebalancing rather than fretting about individual companies.

Portfolio Strategies By Investment Style

Your investing style should also influence how many stocks you own:

Passive Investors:

• Likely best served by 3-8 broad ETFs covering different asset classes
• Minimal time commitment, broad diversification
• Focus on periodic rebalancing rather than stock selection

Active Investors:

• Might personally research and select 15-25 individual stocks
• Requires more time for research and monitoring
• May combine with some ETFs for core positions

Hybrid Approach (my personal favorite):

• Core-satellite strategy with 5-7 ETFs forming 70-80% of portfolio
• 10-15 individual stocks for potentially higher returns
• Best of both worlds: diversification with some opportunity for outperformance

Real-World Examples

Let me share some examples from real investment professionals:

Warren Buffett famously advocates for most investors to simply buy an S&P 500 index fund rather than trying to pick individual stocks. Yet ironically, his own company Berkshire Hathaway holds a concentrated portfolio of about 40-50 stocks.

On the other end of the spectrum, some successful fund managers like Peter Lynch have managed portfolios with hundreds of stocks. Yet research shows most active managers perform best with portfolios of 20-40 stocks.

Practical Steps to Find Your Number

Here’s my advice for figuring out your own ideal number of stocks:

1. Assess your investment knowledge and time commitment

   • Be honest about how much time you can dedicate to research
   • Consider your track record with stock picking

2. Determine your core portfolio foundation

   • Start with broad ETFs for instant diversification
   • Consider these your “never sell” long-term holdings

3. Add individual stocks gradually

   • Begin with familiar companies in industries you understand
   • Aim for representation across different sectors

4. Monitor concentration risk

   • Ensure no single stock represents more than 5-10% of your portfolio
   • Watch for overexposure to any single industry

5. Reassess periodically

   • Review your holdings at least annually
   • Consider consolidating if managing becomes burdensome

Common Mistakes to Avoid

Through my investing journey, I’ve made plenty of mistakes (and seen others make them too):

• Overdiversification: Owning so many stocks that you can’t keep track of them all
• Underdiversification: Having too few stocks or too much concentration in one sector
• Closet indexing: Owning so many stocks that you essentially recreate an index but with higher costs
• Overlapping ETFs: Owning multiple ETFs with significant holdings overlap
• Neglecting rebalancing: Letting winners grow to dominate your portfolio

The Bottom Line

So what’s the final answer? What is a good number of stocks to own?

For most individual investors, I believe the sweet spot is:

• 10-20 carefully selected individual stocks across diverse sectors, OR
• 5-10 broadly diversified ETFs, OR
• A combination of both approaches

The truth is, there’s no perfect number that applies to everyone. The right answer depends on your:

• Investment goals
• Time horizon
• Risk tolerance
• Available time for research
• Personal interest in the markets

What matters most isn’t the exact number of stocks you own but ensuring you have:

1. Sufficient diversification to reduce unsystematic risk
2. A portfolio you can reasonably monitor and manage
3. An asset allocation appropriate for your age and goals

Remember that modern investment vehicles like ETFs have made diversification easier than ever. You don’t need to personally select dozens of individual stocks to achieve a well-diversified portfolio.

In my own journey, I’ve gradually shifted from trying to pick the next Amazon to focusing more on broad market exposure through ETFs, with a smaller allocation to individual stocks I truly believe in. This approach has not only improved my returns but also significantly reduced my stress levels during market volatility.

What’s your approach to portfolio diversification? Are you a stock picker or an index investor? The beauty is that there’s no single right answer – just the approach that works best for your unique situation.

The 3-5-7 rule is a risk management strategy for traders that sets percentage-based limits on risk and exposure.

The “7-3-2 rule” most commonly refers to a financial strategy for wealth building, not a single concept. It suggests a goal of saving your first crore (10 million rupees) in 7 years, then your second crore in 3 years, and your third crore in 2 years, leveraging compounding and disciplined investing. It can also refer to a trucking industry regulation for splitting mandatory driver breaks or a rule of thumb for estimating investment needs.