Many people have a sense of a “magic number,” which they perceive to be the ideal number of stocks to hold in a portfolio. In this article, you will discover more about the ideal number of stocks to hold.
The idea behind having several stocks in your portfolio is to mitigate unsystematic risks, which is the stock-specific risk a company can offer. However, if there are too many stocks, you might be unable to keep track of them and end up with much lesser returns due to over-diversification.
These are a few things that impact your returns in the stock market:
Diversification
This is an important aspect when creating a portfolio. Diversification can be based on several factors. The main goal is to diminish your risks, because the lower the risk of the portfolio, the lower the downside risk.
If you put all your money in one stock, you are at the mercy of that stock’s performance. We cannot precisely predict the performance of a stock since it relies on various unforeseen factors like company risk, industry threat, and domestic and global factors. To factor in this uncertainty, investing in several stocks from different sectors is advisable so that losses from a few of them will not affect your portfolio.
Track your Portfolio
Your portfolio should consist of stocks you can track and know about. Consistent monitoring helps in avoiding uncertain losses. Regularly, you should monitor your portfolio, analyse the gainers and losers, kick out the losers, and look for trends in the sectors and rotate accordingly. Trend rotation is the key to making money along with the view of the stock idea.
Transaction Fees
This is another factor to consider while building a portfolio. You don’t want to give the broker a large chunk of money as commissions to buy or sell frequently. After considering diversification, you should keep a minimum & maximum number of stocks in the portfolio. This helps in optimising your portfolio.
Furthermore, you can choose index-based securities, called exchange-traded funds (ETFs). ETFs provide quick and easy diversification of your portfolio without the hassle of researching every stock and give you a chance to invest in a bouquet of stocks with just a small amount of money.
In conclusion, a mix of 15 – 30 stocks from different industries and sectors, including ETFs, is a decent size to consider. You can count on Geojit to help you analyse your risks and suggest a mix of stocks for your portfolio. It is always advisable to know which stocks you own, periodically monitor your portfolio, and do your research.