How many stocks do you need in your portfolio to be diversified?
June 24th, 2010 | by admin |
Slick asked:
It seems like whether you have $10,000 or $10,000,000, if you were to choose around 10 stocks (not penny stocks) in different sectors, you’d be diversified enough. Any thoughts?
Kim
It seems like whether you have $10,000 or $10,000,000, if you were to choose around 10 stocks (not penny stocks) in different sectors, you’d be diversified enough. Any thoughts?
Kim
No Responses to “How many stocks do you need in your portfolio to be diversified?”
By bortakmeki on Jun 26, 2010 | Reply
its not just a case of how many stocks you have, they need to be in different sectors, then you become diversified. suggest about 20% in precious metals, 60% in uk and us blue chips, and 20% gambling penny stock money
By RAY on Jun 27, 2010 | Reply
Mutual funds offer complete diversification. Go with 10 or so mutual funds by risk and you’ll have diversification that you don’t have the time to keep track of. It’s easier to watch 10 mutual funds than 1,000 individual stocks. Some people consider two stocks to be diversifying while others want/need thousands.
By muncie birder on Jun 28, 2010 | Reply
According to modern porfolio theory, there is little additional reduction of risk beyond 20. There is signficant reduction in risk by adding addional securities below 10. So a good rule of thumb is somewhere between 10 and 20.
One thought is this. No only different sectors but also different geographic areas and different economies. If all of ones money is invested in U S securities, then the corrolation of investments is much greater than it would be between securities of say other regions.
By JW on Jul 1, 2010 | Reply
It depends on their covariances. Find a textbook on investments & look up Harry Markowitz’s mean-variance theory.
The lower the covariances, the fewer the number of stocks.
By diary on Jul 2, 2010 | Reply
a diversified portfolio best resembles the market index such as S&P 500. but its impossible to replicate the market index unless you have alot of money so you should diversify your stocks in different industries taking correlation, risk and weighting into consideration.
By Taranto on Jul 3, 2010 | Reply
Ten is on the low end and still exposes you to quite a bit of company specific stock. Thirty would be better.
If you have $10K — it is best to keep some of your money in a no-load mutual find and then start buying stocks to add to it.