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
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 happens if you buy too many stocks? ›
“Owning 150 stocks or 350 stocks dramatically dilutes any ability you might have to beat the market without adding much in the way of diversification because you've already captured most of the benefits with your first 25 stocks. Yet this is exactly what most active managers actually do.”
What happens when you buy more stocks? ›
There are a couple of ways you'll see this part-ownership reflected. First, the price of each share of stock can increase in value. If you buy 50 shares at $10 a share and then the share price increases to $15, you're now $250 richer.
What does it mean to own stock answers? ›
When you own stock, you own a part of the company. There are no guarantees of profits, or even that you will get your original investment back, but you might make money in two ways. First, the price of the stock can rise if the company does well and other investors want to buy the stock.
What is the danger of issuing too much stock? ›
When a company issues additional shares of stock, it can reduce the value of existing investors' shares and their proportional ownership of the company. This common problem is called dilution.
Is it bad to invest in a lot of stocks? ›
Yes. Holding 50 stocks rather than 25 may lower your downside risk somewhat, but it can also reduce your profit potential. And at that point, it may be better to consider investing through an index fund, or even a combination of several sector-based funds.
What is the best number of stocks to own? ›
Most studies use the fully diversified portfolio as a benchmark and then derive that a portfolio of 20-30 stocks achieves a 'similar' risk profile as the target portfolio.
What happens if I buy more of the same stock at a higher price? ›
Average up refers to the process of buying additional shares of a stock one already owns, but at a higher price. This raises the average price that the investor has paid for all their shares.
What happens to a stock when someone buys a lot? ›
Key Takeaways
When one company acquires another, the stock price of the acquiring company tends to dip temporarily, while the stock price of the target company tends to spike. The acquiring company's share price drops because it often pays a premium for the target company, or incurs debt to finance the acquisition.
Do stocks go up when more people buy them? ›
“When investors learn new information about a company, it can make them want to buy or sell its stocks,” Haight said. “If more people buy the stock, then the price goes up. If more people sell the stock, then the price goes down.”
How can you make $5,000 turn into $10,000? Turning $5,000 into $10,000 involves investing in avenues with the potential for high returns, such as stocks, ETFs or real estate. Another approach is to use the money as seed capital for a profitable small business or side hustle.
Which stock will double in 3 years? ›
Stock Doubling every 3 years
| S.No. | Name | CMP Rs. |
|---|
| 1. | HB Stockholdings | 91.90 |
| 2. | Systematix Corp. | 937.05 |
| 3. | Refex Industries | 150.90 |
| 4. | Guj. Themis Bio. | 409.90 |
18 more rowsUsually, securities are held in "street name," meaning you own the shares, but they are registered in the broker's name and held by it on your behalf. This generally makes stock ownership cheaper, more liquid, and much easier to prove. Your ownership is registered electronically.
Is it bad to have too many stocks? ›
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 when you issue more stock? ›
Stock dilution refers to a reduction in the ownership percentage of a shareholder in a company as a result of the issuance of new shares. It can impact investors by diluting their ownership, reducing the stock price, impacting earnings per share, and decreasing dividend payouts.
What is the problem with excess stock? ›
There are many disadvantages of carrying excess inventory, including inefficiencies and operational and financial strain, especially with slow inventory turnover. It ties up capital, restricts cash flow, raises carrying costs, and increases the risk of obsolete inventory, which in turn, impacts profit margins.
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.
Is it okay to buy 10 shares of stock? ›
Most experts tell beginners that if you're going to invest in individual stocks, you should ultimately try to have at least 10 to 15 different stocks in your portfolio to properly diversify your holdings.
How many times can you buy stocks in a day? ›
Just as how long you have to wait to sell a stock after buying it, there is no legal limit on the number of times you can buy and sell the same stock in one day. Again, though, your broker may impose restrictions based on your account type, available capital, and regulatory rules regarding 'Pattern Day Traders'.
Should I take all my money out of stocks? ›
Unlike the rapidly dwindling balance in your brokerage account, cash will still be in your pocket or in your bank account in the morning. However, while moving to cash might feel good mentally and help you avoid short-term stock market volatility, it is unlikely to be a wise move over the long term.
