Deciding how many stocks to buy and manage is a key part of building a successful investment portfolio. This article explains the main principles that guide this decision, including diversification, position sizing, and how to adapt your approach to your goals and risk tolerance.
Key Principles for Determining Portfolio Size
Diversification Reduces Risk
Holding more stocks in your portfolio spreads your risk. If one company performs poorly, it has less impact on your overall results. Research shows that a portfolio of around 20 stocks is already well-diversified for most investors. We recommend 50 which is also the number we recommend in our two newsletters.
Position Sizing Controls Exposure
Position sizing means deciding how much of your portfolio to allocate to each stock. The newsletter typically recommends 2% per position for larger portfolios and 5% for smaller ones to keep your costs low. This helps you avoid large losses from any single investment and makes your portfolio easier to manage.
Adjusting to Your Risk Tolerance and Goals
If you prefer less risk, consider holding more stocks with smaller position sizes. If you are comfortable with higher risk and want to focus on your best ideas, you might hold fewer stocks with larger positions. Always stay within ranges that limit the impact of any single loss.
Ongoing Management and Rebalancing
Review your portfolio at regular intervals, such as once a month, to check for any positions that have hit stop-loss limits or no longer fit your strategy. As your portfolio grows, you may want to increase the number of holdings to maintain diversification, or adjust position sizes as your confidence grows.
Recommendations
Aim for at least 20-50 stocks for solid diversification.
Keep individual positions to 2–5% of your portfolio.
Review your holdings monthly to rebalance and manage risk.
Adjust the number of stocks if your portfolio size or risk tolerance changes.
Further Reading
What do I do if my portfolio is still quite small?
I have just subscribed, how do I start?
How to follow the 20% trailing stop loss rule