Early on in your investing journey, the number of stocks you hold is not really a concern but as your portfolio grows, you start thinking about how many different stocks you should have. There is a tendency to set a fixed amount per holding and then adding more holdings as a way to limit your exposure to a company. However, you need to be able to adjust those values as you grow your portfolio.
A factor that is pertinent to deciding on how many stocks is how much per stock do you want to have. You can’t just put a really small amount with your discount broker since the fees are going to eat up your funds. Obviously, discount brokers are now offering low trading fees compared with just 5 years ago. There are no reasons to pay more than $10 per trade nowadays.
There are different ways to look at how much you should have in a stock.
- You want to DRIP the stock so you put enough for the dividends to cover the purchase of new shares.
- You want equal exposure for simplicity and balancing
- You want to limit risks on some of your selection
How Many Stocks For Your Portfolio?
The size of your portfolio does matter. If you have $100,000 in your portfolio, chances are you are increasing the size of your holdings compared with someone starting with a $10,000 portfolio. The same applies to someone who has $1,000,000. Back in 2009 when I bought the Canadian banks at less than half their current value, I still only bought $10,000 while my parents bought for over $50,000. At some point, the size of the money you talk about becomes relative.
With the size of my portfolio, I tend to invest between $4K and $6K per stocks. When a holding reaches $8K through appreciation, I may sell some to rebalance or initiate a new position. That holding size is currently the sweet spot for me but I can see it going up to the $7K and $8K in the near future to avoid just adding new position to my portfolio.
Related: How to invest with little money
Rule of Thumb on Number of Stocks
If you can’t follow all the companies you invest in, how do you know they are still good investments? I invest for the long-term and I work on selecting companies that have a moat in their market with the ability to sustain it. I also need to understand the business of the company and be able to explain it to my kids. If I can’t, it’s too complicated for me.
My Magic Number
I have around 30 individual stocks. See my portfolio for the details. However, all the Canadian banks are somewhat the same to me. Rather than invest in just one, I went wide to avoid too much exposure to just one bank. I also own the four big telecoms in Canada as a way to diversify across them. I know Buffett has a different approach :) I am not done with my diversification in the US so I am sure to pick up more holdings in the US for my RRSP. For my Canadian investments, I have covered a large number of them so far. Even though I have shares in some companies, it doesn’t mean I have a lot. I am not holding a lot of shares with the life insurance at the moment for example.
My number is between 30 and 35. If I fill the need to add an extra holding, I will look at consolidating other positions.