We all agree that we need a diverse portfolio of shares. But how much is too much? Is it possible to have shares in too many companies. Is it possible to spread yourself too thin? When you have money to buy shares do you invest in your existing portfolio or do you simply buy new shares in a different company?
You diversify to reduce unsystematic risk. Generally, this effect gets less with every stock you add and should not give you much additional effects from roughly 17-2X stocks onward.
Or you just invest in an ETF, which is easier.
Its usually a mixture of new ideas/companies and existing ones that I invest in. I don’t have a hard and fast rule about this personally.
I’m going to say ‘no’ - it’s not possible to spread yourself too thin. I think diversifying is generally a great move to make.
My stocks portfolio is currently split across 26 companies/ETFs in various industries and I feel this is a little too much diversification. The largest holding is 14% of my stocks portfolio, and my stocks portfolio is just 24% of my assets. It’s definitely more difficult to make quick decisions when your portfolio is more diverse, but at the same time the risk is diluted.
While the proportion of stock assets keeps increasing, the overall risk of the portfolio keeps decreasing. Even when the proportion of stock assets reaches about 30%-40%, the risk of the portfolio drops to the lowest level, close to zero.
What does that mean? Adding stocks never decreases the overall risk to zero