Early on in your investing journey, the number of stocks is not really a concern but as your portfolio grows, you start thinking about how many different stocks you should have. There is a tendency to set a fix amount per holding and then adding more holdings as a way to limit your exposure to a company. However, you need to be able to adjust those values as you grow your portfolio.
A factor that is pertinent to deciding on how many stock is how much per stock do you want to have. You can’t just put a really small amount with your discount broker since the fees are going to eat up your funds. Obviously, discount brokers are now offering low trading fees compared with just 5 years ago. There are no reasons to pay more than $10 per trade nowadays.
There are different ways to look at how much you should have in a stock.
- You want to DRIP the stock so you put enough for the dividends to cover the purchase of new shares.
- You want equal exposure for simplicity and balancing
- You want to limit risks on some of your selection
Portfolio Size Matters
The size of your portfolio does matter. If you have $100,000 in your portfolio, chances are you are increasing the size of your holdings compared with someone starting with a $10,000 portfolio. The same applies to someone who has $1,000,000. Back in 2009 when I bought the Canadian banks at less than half their current value, I still only bought $10,000 while my parents bought for over $50,000. At some point, the size of the money you talk about becomes relative.
With the size of my portfolio, I tend to invest between $4K and $6K per stocks. When a holding reaches $8K through appreciation, I may sell some to rebalance or initiate a new position. That holding size is currently the sweet spot for me but I can see it going up to the $7K and $8K in the near future to avoid just adding new position to my portfolio.
Related: How to invest with little money
Rule of Thumb on Number of Stocks
Related: Why Dividend Investing?
My Magic Number
I have a total of 32 individual stocks. However, all the Canadian banks are somewhat the same to me. Rather than invest in just one, I went wide to avoid too much exposure to just one bank. I also own the four big telecoms in Canada as a way to diversify across them. I know Buffett has a different approach I am not done with my diversification in the US so I am sure to pick up more holdings in the US for my RRSP. For my Canadian investments, I have covered a large number of them so far. Even though I have share in some companies, it doesn’t mean I have a lot. I am not holding a lot of shares with the life insurance at the moment for example.
My number is between 40 and 45. If I fill the need to add an extra holding, I will look at consolidating other positions.
Readers: What’s your number?