What’s the best amount of stocks to own for a portfolio? Does being Too diversified go against an investor? Would investing in 5 be better than investing in 10 because having 10 splits the dividend accumulation, making it difficult to grow faster? (If that makes sense)
My own personal experience over the last year is mixed.
I started out investing in ETFs, but didn’t like the two layers of separation of ownership and the lack of control around investment choices and fees.
So I decided to pick my own stock, 33 shares I built up over 6 months, mix of UK and US. I managed to claw back earlier losses and I noticed that my portfolio had less severe swings than the markets, e.g. ftse100 gained 1%, my portfolio gained 0.8%; FTSE dropped 1.5% my portfolio gained 0.5%.
But it has become a headache looking after each one, some shares dropped 13% whilst others soared, do I sell, do I reinvest because I think they are undervalued?
Then the biggest problem. With a FTSE 100 (or S&P500) etf I can take advantage of monthly averaging just with buy a few more shares, this gives me a fractional increase in every share. BUT with my individual shares portfolio I can no longer do this.
My problem is now: I have £200 a month to invest, my portfolio drops a few % … but which shares do I put my £200 into? If I put it into MasterCard, well actually that blows my whole £200 (and some) for that month so no other share is going to benefit from averaging that month.
But if I use an ETF I can put the £200 into that and every shares gets a little top up.
Now with the advent of fractional shares this goes away, and if the autopilot comes along soon then happy days.
So personally, I just can’t work out what to do right now
Will try and give you something more helpful, although this question doesn’t have an actual answer. A few points to consider:
Stock additions have an exponentially diminishing benefit to diversification. eg going from 1 to 2 stocks could potentially double your diversifcation but going from 20 to 21 stocks will have little impact
This is a commonly used chart to illustrate that
Secondly, the number is less important than the variance between holdings. Holding 10 different house building companies would likely not provide a smoother ride than say owning 1 housebuilder and 1 health care stock.
My final point is to make sure you are not adding stocks for the purpose of diversification alone. Make sure you understand the business and believe that it can provide good returns for your portfolio over the long term. On a similar note, if you have 50 companies, i would be very suprised if you could monitor them all efficently to ensure they continue to be companies you want to invest in.
What I would go for is to start of with around 80% in a globally diversifed tracker (MSCI World for example) and then take your time and find a few companies to invest alongside them.
Assuming your personal experience is just on FT then 1 year or less is hardly representative. If your 33 included Burford or Sirius Minerals the swings would be more severe. And if you’re unsure whether to 13% drop is a dead horse or buying opportunity then it seems the 33 weren’t even purchased with much conviction. This is why OP & most others if they care about reliably making money without much hassle should just stick to ETFs. Thinking “I like Facebook so I’ll buy it” or “People like to drink in good times & bad so I’ll buy Diageo” isn’t much of a thought process & listening to Jeremy hype up Tesla on YouTube doesn’t count as research
As others have said there is no answer to this question and many people will have a different views. I think a universally agreed principle is that some diversification is good but that too much can mean its very heard to keep fully track of your investments.
It also depends to an extent on what investment strategy you are using.
In the intelligent investor I believe Ben Graham advocates a number between 5 and 20 for the ‘enterprising’ investor. More than 20 is extremely difficult to keep abreast with what is going on whereas less than 5 is too under diversified.
Personally I have 50% of my portfolio in 12 stocks and the other 50% in the MSCI world index. I would like to add a few more stocks in there to add to the diversification but I’m not in any particular rush to do so as the index fund does balance this out somewhat.
Not necessarily, if you are investing in 10 companies with a specific focus on dividend investment then the average yield of all your investment is the most important thing. If all the companies paid the same dividend for example you would receive half as much from each company but you are receiving double the number of dividends = the same result.
You have answered your own question without realising it.
Just hold cash if you don’t know what to do. Shares go up and down slowly unlike currencies.
But for example I am currently holding Japanese yen with a 4-5 month outlook and return of roughly 20-30%. It’s a safety play with profits. By that time shares should have bottomed but requires a review on a weekly basis. Volatility is pretty muted considering world events. 2008 was much faster and that leads me to think that this present scenario will also continue for a longer period of time.
there’s a very old saying ‘don’t catch a falling knife’. Apply it now.
Transfer wise is the easiest I have found and good rates as you just pay commission off the market rate. Currencies direct will hold currencies on account for you until you exchange or use them.
Hope this helps.