There’s no limit to the range of investment questions that members of Pat McKeough’s Inner Circle get to ask me and my investment associates.
Many members ask us about specific investments (such as stocks, exchange-traded funds and income trusts), that they are thinking of buying or selling. However, they frequently ask us about more broad-based portfolio management and investing strategies, as well.
One question that Inner Circle members commonly ask is how many stocks they should have in their investment portfolios. To give you an idea of our portfolio management approach to this issue, I’d like to share an Inner Circle member’s question. I hope you enjoy and profit from it.
Q: Hi Pat, Your portfolio management advice has serve me very well, even through the 2008/2009 stock-market downturn. Thank you! I have over $100K in my portfolio, and am wondering how many stocks I should hold. How many for $150K? Thanks.
A: The right number of stocks for you to own depends in part on where you are in your investing career.
When they’re just starting out, most investors have modest amounts of money to invest. Even so, it’s a good portfolio management strategy to invest at least several thousand dollars at a time, even if this means you can only buy a handful of stocks. Otherwise, your broker’s minimum commission will work out to too high a percentage of your investment on each purchase.
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As part of your initial portfolio management approach, you should aim to invest in a minimum of four or five stocks — one from each of most, if not all, of the five main economic sectors (Manufacturing & Industry; Resources; Consumer; Finance; and Utilities). But you can buy them one at a time, over a period of months or even years, rather than all at once. After that, you can gradually add new stocks to your portfolio as funds become available, taking care to spread your holdings out as we advise.
Our portfolio management advice? Add new stocks as your portfolio’s value increases
When your portfolio gets into the $100,000 to $200,000 range, you should aim for perhaps 15 to 20 stocks. If you’re married, it’s best to treat your family holdings as one big portfolio, even if you and your spouse keep your money separate. That way, you can be sure you aren’t operating at cross purposes, or investing too much of the family fortune in a single area.
When you get above $200,000 or so, you can gradually increase the number of stocks you hold. When your portfolio reaches the $500,000 to $1 million range, 25 to 30 stocks is a good number to aim for.
Of course, you may fall a few stocks below that range, or go a few above it, particularly when you’re making changes in your holdings. That won’t matter if you follow our three-part investment advice: invest mainly in well-established companies; spread your money out across the five main economic sectors, and downplay stocks that are in the broker/public relations limelight.
Our upper limit for any portfolio is around 40 stocks. Any more than that and even your best choices will have little impact on your personal wealth.
If you have investment questions, or if you’d like to ask us about stocks or other types of investments you’re considering buying (or selling), you should join our Inner Circle service. Click here to learn more.
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