Every Wednesday, we publish our “Investor Toolkit” series. Whether you’re a new or experienced investor, these weekly updates are designed to give you advice on investing, including specific stock market advice. Each Investor Toolkit update gives you a fundamental piece of our investment strategy, and shows you how you can put it into practice right away.
Tip of the week: “While some investors may have too few stocks in their portfolios, the more common mistake is to have too many stocks.”
The right number of stocks for you to own depends in part on where you are in your investing career. It makes sense that you should have fewer stocks when you begin and add more as you advance. But there is an upper limit to the number of stocks you should own—beyond that limit, the stocks in your portfolio can begin to neutralize each other and your returns can suffer.
The beginning investor: Most investors start out with modest amounts of money. Still, we believe that you should 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.
Pick at least one stock from each of the 5 sectors. You should plan to invest in a minimum of four or five stocks right from the beginning. Pick one from each of the five main economic sectors (Manufacturing & Industry; Resources; Consumer; Finance; and Utilities). If you can’t manage to own one from each of the five when you start out, try to cover as many of the sectors as you can.
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 recommend.
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As the value of your portfolio rises, add new stocks. When your portfolio reaches 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 one area.
Our 3-part investment advice is key. 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 hold.
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 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 stocks can begin cancelling each other out. Even your best choices will have little impact on your personal wealth.
COMMENTS PLEASE
How old were you when you began investing in stocks? Did you have a plan in mind? Looking back, what would you have done differently? Let us know what you think in the comments section below. Click here.
Comments
Joe
I wonder what a current conservative growth portfolio, both US and Canadian, would look like in today’s environment? Anyone care to make a list? Myself, I am not sure I could decide on which 30 stocks to hold onto.
joe
I first began investing in stocks through mutual funds in my early forties (I am now 76), and in individual stocks in my late forties. I do not believe in investing in more than 12 – 15 stocks at one time because it is harder to keep track of them all if you have too many. I am diversified according to your 5 sector approach, but with less emphasis on the resources sector. The stocks I invest in all pay a dividends and I am on the conservative side in my selections. Some of the stocks I like best have a strong International presence, such as BNS, MCD, IBM, and SWK. Of domestic stocks, I like CN, REI.UN, BCE and SAP. I believe that if you have solid stocks such as these, you can take the dips when they come.
If I have any regrets it is mainly that I have made some poor selections at times, and that I did not get out out of some tech stocks soon enough when the tech bubble burst. I have been a Successful Investor subscriber for about 15 years and an intermittent subscriber of the Wall Street Stock Forcaster and The Stock Picker’s Digest.
My start in stock investing was in Australia, 1966. Unfortunately, Pat, you were not around over there. When I moved the family to Canada, I latched on the Investment Reporter and a guy named Pat. Despite my recent five year dalliance with a full time broker (with a negative return of $30k) I have stayed the course with TSI network. In control of my own destiny once again, with the help and advice from you, Pat, I am seeing a positive cash flow despite the European hiatus. I thank you, my wife thanks you, the CRA thanks you, and maybe our children will thank you.
You counsel wisely and I wish I would have had someone like you to guide me in my twenties. Although I would be very rich today, I am glad that I was introduced to the Spiritual Wealth writings of Alex Greene, another worthy financial advisor.
Money channelled to good causes is a reward in itself and, at my age, it’s an interesting pursuit.
You are on my list when my present subscribtions end.
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I wonder what a current conservative growth portfolio, both US and Canadian, would look like in today’s environment? Anyone care to make a list? Myself, I am not sure I could decide on which 30 stocks to hold onto.
joe
I first began investing in stocks through mutual funds in my early forties (I am now 76), and in individual stocks in my late forties. I do not believe in investing in more than 12 – 15 stocks at one time because it is harder to keep track of them all if you have too many. I am diversified according to your 5 sector approach, but with less emphasis on the resources sector. The stocks I invest in all pay a dividends and I am on the conservative side in my selections. Some of the stocks I like best have a strong International presence, such as BNS, MCD, IBM, and SWK. Of domestic stocks, I like CN, REI.UN, BCE and SAP. I believe that if you have solid stocks such as these, you can take the dips when they come.
If I have any regrets it is mainly that I have made some poor selections at times, and that I did not get out out of some tech stocks soon enough when the tech bubble burst. I have been a Successful Investor subscriber for about 15 years and an intermittent subscriber of the Wall Street Stock Forcaster and The Stock Picker’s Digest.
I do not believe that I have too many stocks or too few.
My start in stock investing was in Australia, 1966. Unfortunately, Pat, you were not around over there. When I moved the family to Canada, I latched on the Investment Reporter and a guy named Pat. Despite my recent five year dalliance with a full time broker (with a negative return of $30k) I have stayed the course with TSI network. In control of my own destiny once again, with the help and advice from you, Pat, I am seeing a positive cash flow despite the European hiatus. I thank you, my wife thanks you, the CRA thanks you, and maybe our children will thank you.
You counsel wisely and I wish I would have had someone like you to guide me in my twenties. Although I would be very rich today, I am glad that I was introduced to the Spiritual Wealth writings of Alex Greene, another worthy financial advisor.
Money channelled to good causes is a reward in itself and, at my age, it’s an interesting pursuit.
You are on my list when my present subscribtions end.