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Question
What is the maximum number of stocks one should have in their investment portfolio?
Answer
I hope you’re doing well! I see why you would like to know the maximum number of stocks to have in your investment portfolio, and having clarity on this is in fact a good thing.
A good investor should look to have a well diversified investment portfolio that can maximise returns and mitigate risks. This would mean that you do not put all of your eggs in one basket but instead, spread out your savings into different investments ranging from low-risk investments like a high-yield savings account to high-risk investments like owning individual stocks.
For instance, say, you have decided to invest 20% of your ₦500,000 monthly salary which will amount to ₦100,000. You can decide to invest ₦20,000 in a dollar saving account as an emergency fund, ₦50,000 in one or two ETFs and the remaining ₦30,000 in individual company stocks. The reality is that the individual stocks (if you have chosen well) have a better chance at a higher return but the ETFs come at a lower risk than the stocks.
The simple truth is, there isn’t a one-size-fits-all answer to the exact number of stocks you should have, but your budget and the amount of risk you are willing to take while investing should be able to guide you as to the right number of stocks to buy.
Your investment goals should also tell you how much you need to invest and keep investing to achieve them. If you need to buy a property by the end of one year, do the calculations of the total amount it will cost by then (factoring in inflation rates) and calculate how much you will need to invest every month and how much you’ll be putting into buying stocks. I hope that answers your question!
I should add that it is important that you focus on the quality of stocks rather than just the quantity. Invest in companies with strong fundamentals, good growth potential, and solid financial health. Do your due diligence, check out their websites and financial statements, and consider seeking advice from financial advisors if you feel overwhelmed by your findings.
You should also know that beyond individual stocks, there are other investment options you can consider diversifying into such as Exchange Traded Funds (ETFs), bonds, real estate, or mutual funds. The amazing thing about ETFs is that it is a pool of sometimes up to 100 different individual company stocks all in one. The whole point of diversification is to further reduce risk in case something happens to one or more assets of yours. It also enhances potential returns since you can invest in different classes of assets ranging from low- to high-risk.
In summary, there is no strict maximum number of stocks for every investor. However, you should start from somewhere even if it’s one. The key is to stay consistent and focused on achieving those goals you have set for yourself. Always align your portfolio with your investment goals, risk tolerance, and ability to manage your investments effectively.
At MoneyAfrica, we encourage individuals in different phases of life to take charge of their finances. If you have any questions or concerns about your investments or you would like to discuss your portfolio strategy further, join our community by clicking here.
See you soon!
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