Definition

How Many Stocks Should You Own?

Enough that one mistake cannot ruin you, few enough that you can actually follow them.

Brian Feroldi

By Brian Feroldi, co-founder of Long Term Mindset

Investing since 2004. 3,000+ articles for the Motley Fool. Author of Why Does The Stock Market Go Up?

Last updated

Most research points to 15 to 25 individual stocks as the practical range. Below roughly 10, a single company can dominate your outcome. Above roughly 25, additional positions remove very little further risk while making the portfolio harder to follow properly, which quietly raises a different risk.

What diversification actually removes

Portfolio risk splits in two. Company-specific risk is the risk that one business fails: an accounting scandal, a failed drug trial, a disrupted product. Market risk is the risk that everything falls together, and no amount of stock picking removes it.

Diversification only addresses the first kind, and it does so with sharply diminishing returns. Moving from one stock to ten removes most of the company-specific risk. Moving from ten to twenty removes a good deal of what is left. Moving from twenty to a hundred barely moves the line at all, because what remains is market risk, which is not going anywhere.

That curve is the whole argument. The benefit is nearly exhausted by around twenty holdings, so positions beyond that are paying a real cost in attention for almost no reduction in risk.

The cost nobody counts

Every position needs maintaining. Earnings read four times a year, a thesis checked, a competitive position reassessed. Call it a few hours a year each if you are being honest about it.

Forty positions is therefore a part-time job, and the realistic outcome is not that you do it. It is that you follow eight of them properly and hold the other thirty-two on the strength of a decision you made years ago and have not revisited. That is worse than owning eight, because you have the illusion of diversification and none of the understanding, and you will not notice when one of the thirty-two breaks.

The two limits that decide your number

Take the lower of the two answers. Concentration only works if the concentrated positions are genuinely better understood than the alternatives, and the honest test is whether you can explain each thesis without looking anything up.

Position sizing matters more than the count

Twenty stocks where one is 40% of the portfolio is a concentrated portfolio wearing a diversified costume. The number of holdings tells you very little on its own; what matters is how much of your outcome depends on any single one.

The other half of that question is correlation. Twenty positions that are all high-growth software companies will move together in a downturn, so the count says twenty and the exposure says roughly one. Spread across lifecycle phases and industries, twenty positions behave much more like twenty.

If you cannot follow any of them

The honest answer for many people is that they do not want to spend a weekend a year per company, and for them the right number of individual stocks is zero. An index fund delivers market returns for no research at all, and beats a portfolio of forty half-followed positions comfortably. Owning individual stocks is a choice to do work, and it only pays if the work happens.

The diversification curve, and where it flattens

The three bands, and underneath them the research chart that explains why: total portfolio risk falls steeply to about twenty holdings and then runs almost flat along the market-risk floor.

How Many Stocks Should You Own infographic by Brian Feroldi. Three bands: too few at 0 to 10 stocks, a sweet spot at 15 to 20 stocks, and too complex above 25 stocks. Holding fewer than 15 concentrates risk and leaves the portfolio vulnerable to a few companies; owning 15 to 25 balances diversification against meaningful gains; more than 25 can dilute returns and makes each investment harder to manage and track. Key takeaways: avoid under-diversification by holding more than 10 stocks, aim for 15 to 20 for balance, and be cautious above 25. A chart from Dresdner Kleinwort Macro research plots total portfolio risk as standard deviation against the number of stocks held, falling steeply from about 29% at a few holdings and flattening toward the market risk floor of roughly 15% by around 20 to 30 stocks.
How Many Stocks Should You Own. Original graphic by Brian Feroldi.
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Understand each position well enough to keep it

The real limit on portfolio size is how many businesses you can genuinely follow. Phase Check tells you where any US-listed company sits in its lifecycle and what to watch there, which is the fastest way to keep a thesis current on the ones you already own.

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Frequently asked questions

Start smaller than you expect, around five to ten, and add positions only as you can genuinely follow them. Beginners tend to over-diversify quickly into names they cannot explain, which produces the appearance of safety without the understanding that makes it real.
No, twenty sits at the top of the range most research supports. It removes nearly all the diversification benefit that is available while remaining followable for someone willing to spend a few hours a year per company. The question is whether you will actually do that work.
Yes. Beyond roughly 25 the additional risk reduction is close to zero while the research burden keeps rising, so in practice you stop following most of them. That is worse than a smaller portfolio, because you hold the illusion of diversification without the understanding.
Equal weighting at around 4% to 7% each suits most portfolios, which implies 15 to 25 holdings. What matters more than the count is that no single position can do damage you cannot recover from, and that your holdings are not all exposed to the same thing.
Only if you will do the work. An index fund delivers market returns for no research and beats a portfolio of forty half-followed positions. Individual stocks are a choice to spend time understanding businesses, and the returns come from the understanding rather than from the choosing.

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