There's no one-size-fits-all approach to the question of portfolio allocation. But we might be able to point you in the right direction.
March 1, 2020
You’ve asked us some great questions, and here are our answers! We’ve pulled together your most-asked questions into our new “7 Most Common Questions” article series.
One of the most-asked questions at 7investing is how investors should think about allocating their portfolio, namely pertaining to how many stocks you should own and what your weighting of those individual positions should be.
The short answer: There’s more than one way to build a portfolio. How many stocks you own (and how you allocate your capital to each of those stocks) is up to you. But we do have some thoughts on the matter that could be helpful.
The longer answer: At risk of disappointing those of you who’d like a concrete answer to this oft-posed inquiry, there’s no hard-and-fast rule for how many stocks you should own, or for how widely (or narrowly) allocated your portfolio should be.
[su_button url="/subscribe/" style="flat" background="#84c136" color="#ffffff" size="6" center="yes" radius="0" icon="" icon_color="#ffffff" desc="Get full access to our 7 best ideas in the stock market every month."]Sign Up Today! [/su_button]
To be clear, 7investing is not a brokerage, so we can’t manage your money or provide individualized investment advice. Rather, we believe investing is a highly personal endeavor (see principle #1 here). Just as nobody cares about your money quite as much as you do, nobody can tell you exactly how many stocks you’re the most comfortable owning.
In general, of course, the smaller the number of individual stocks you own, the more prone your portfolio will be to the underlying volatility of those individual names. And the converse is true for a larger number of stocks, in both cases assuming the unlikely scenario that each stock is equally weighted as part of the whole portfolio.
Some people might prefer a relatively narrow portfolio of 20 to 30 stocks, while others might enjoy building a portfolio of 80 to 90 individual names over time. This certainly doesn’t mean those names must be equally weighted of course; too often disparate performance figures mean they don’t stay that way for long even if they started as equivalent-sized positions.
That said, we do occasionally discuss the topic of portfolio allocation and the size of starter positions at 7investing, both as a team and on an individual basis.
For more on this topic, consider listening to our recent (March 25, 2021) team podcast episode, “How We Manage Our Portfolios.”
Our team also recently published the following individual updates regarding how we think about portfolio allocation:
The 7investing team also occasionally discusses our personal holdings and allocation thoughts in our respective Twitter feeds. If you’d like to follow along with our daily investing musings outside of our formal updates and recommendations at 7investing.com, I’m @7investingSteve, Simon Erickson is @7innovator, Matthew Cochrane is @Matt_Cochrane7, Anirban Mahanti is @7amahanti, Dana Abramovitz is @DanaAbramovitz7, and Luke Hallard is @7LukeHallard.
Already a 7investing member? Log in here.