How Many Stocks Should You Buy?

To diversify means you are investing your money in many different companies’ stock. If you want true diversification, you need to also invest in stocks of different industries as well. This further reduces risk because most likely at least some of the stocks will gain.

Diversification isn’t that hard to understand. It’s the doing it part that is a bit more difficult. Some people think that correct diversification means buying stock from 40 different companies.

Is buying stock from 40 different companies the proper way to be diversified? No? Than how many do you need to really be diversified? Definitely not 40. You could never do the proper research to keep up with 40 different companies and still have a life besides that.

When you buy stock in a company, there are many things you need to do beforehand. You must do your research. You need to read the annual statement and financial statements, you must keep up on news about the company, and you must know the company. You should never invest in a company that you can’t understand whether it’s that you can’t understand how they make their money or what their product does.

If you invest in 40 companies, or even just 20, you won’t be able to put in the right amount of time for each stock. It may take you up to 1 hour per week to keep up with each stock. If you feel this is too much time, you might not be well committed to investing into stocks directly and should invest in a mutual fund or index fund.

If you are interested, in order to make investing worth your time and still have a diversified portfolio, you should invest in 5 to 10 stocks. If you are investing a smaller amount, 5 stocks should be enough.

You don’t need to be invested in tons of different stocks to really be well diversified. This is a common misconception. In fact, you shouldn’t be invested in too many. You need to be able to keep an eye on your investments and keep up with them. Stay diversified with a few stocks in different industries and you should be good.

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