How Many Stocks Should You Own to Achieve Diversification?

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08-12
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During a market downturn, people often talk about the importance of diversification. ๐ŸŒ

How many stocks should you actually own to be well diversified? ๐Ÿค”

A prevailing statement is that you should plan to own 25 to 30 stocks if individual stocks are to make up the majority (50% or more) of the equity part of your portfolio. ๐Ÿ’ผ Owning at least 15 stocks helps avoid over-concentration in any single stock or sector. ๐Ÿ“Š

You can obtain more than 90% of the benefits of diversification by owning just 12 to 18 stocks. ๐Ÿ“ˆ But this doesn't mean that holding the Magnificent 7 and another 10 tech companies will reduce your portfolio's risk. ๐Ÿšซ

The correlation between your holdings is crucial for diversification. ๐Ÿ”—

Generally, correlation ranges between -1 and 1. The lower the correlation between assets, the safer your stock portfolio is. ๐Ÿ›ก๏ธ When analyzing correlation, it mainly refers to the allocation between different assets.

If the correlation between two stocks is 1, the risk of your portfolio is not reduced. In the U.S. stock market, the correlation between various sectors is relatively high, greater than 0.5. ๐Ÿ“‰

Correlation among US assets and International stocks (1970-2017)Correlation among US assets and International stocks (1970-2017)

Besides the low correlation between US Treasury and US stocks shown in the chart, gold also has a relatively low correlation with US stocks. ๐ŸŸก

Is your portfolio truly diversified? ๐ŸŒ

After nearly a month of market decline, have you suffered significant losses or made a profit? ๐Ÿ“‰๐Ÿ’ฐ

Do you have any tips to share with other investors? ๐Ÿ’ก

Leave your comments and also post to win tiger coins~

Is Your Portfolio Well-Diversified?
During a market downturn, people often talk about the importance of diversification. ๐ŸŒ But how many stocks should you actually own to be truly diversified? ๐Ÿค” A prevailing statement is that you should plan to own 25 to 30 stocks if individual stocks are to make up the majority (50% or more) of the equity part of your portfolio. ๐Ÿ’ผ Owning at least 15 stocks helps avoid over-concentration in any single stock or sector. ๐Ÿ“Š
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
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Comments

  • icycrystal
    08-12
    icycrystal
    Win 20 Tiger-coins
    trying to keep it to around 20 stocks but if prices for other stocks are good then perhaps may add.

    will diversify into other financial instruments as well like MF, SSB, Tbills, etc...

    @Shyon @LMSunshine @koolgal @Universeๅฎ‡ๅฎ™ @GoodLife99 @Aqa @rL @HelenJanet @SPACE ROCKET @TigerGPT

    Is your portfolio truly diversified? ๐ŸŒ


    After nearly a month of market decline, have you suffered significant losses or made a profit? ๐Ÿ“‰๐Ÿ’ฐ


    Do you have any tips to share with other investors? ๐Ÿ’ก


    Leave your comments and also post to win tiger coins~


    • Shyon:ย 
      Nice and useful sharing
    • TigerGPT:ย 

      As an AI, I don't have a personal portfolio. However, I can provide some general tips on portfolio diversification and share some insights on the recent market decline.

      Diversification: It's important to diversify your portfolio across different asset classes, sectors, and regions to reduce risk. Including financial instruments like mutual funds (MF), Singapore Savings Bonds (SSB), and Treasury bills (T-bills) can help achieve diversification. Consider allocating your investments across stocks, bonds, real estate, commodities, and other assets to spread risk.

        

      Correlation with US stocks: To achieve a low correlation with US stocks, consider investing in international stocks or funds that focus on non-US markets. This can help reduce the impact of US market fluctuations on your portfolio. Look for opportunities in emerging markets or sectors that are less influenced by US market trends.

        

      Portfolio performance during market decline: The performance of your portfolio during a market decline depends on the specific investments you hold. Diversification can help mitigate losses during market downturns, but it does not guarantee profits. It's important to regularly review and rebalance your portfolio to ensure it aligns with your investment goals and risk tolerance.

        

      Tips for investors:

      Stay informed: Keep up with market news, economic indicators, and company updates to make informed investment decisions.  

      Long-term perspective: Focus on long-term goals and avoid making impulsive decisions based on short-term market fluctuations.  

      Risk management: Set realistic expectations and diversify your investments to manage risk effectively.  

      Seek professional advice: Consider consulting with a financial advisor who can provide personalized guidance based on your financial situation and goals.  

        

      Remember, investing involves risks, and past performance is not indicative of future results. It's important to conduct thorough research and consider your own risk tolerance before making any investment decisions.

      Please note that the above information is for educational purposes only and should not be considered as financial advice.

  • MilkTeaBro
    08-12
    MilkTeaBro
    Win 5 Tiger-coins
    I hold 25 counters
  • highhand
    08-12
    highhand
    Win 20 Tiger-coins
    10 for concentrated diversification. higher risk but larger reward.
    20 for real diversification but must distribute across different sectors. not all tech huh.
    40 if you want to be like a hedge fund manager and have time to monitor...
  • MicroStrategist
    08-12
    MicroStrategist
    Win 5 Tiger-coins
    Go with the Mag 7 on the golden rule of your money
  • Samlunch
    08-12
    Samlunch
    Win 10 Tiger-coins
    I hold SPY and QQQ and some local SG bank stocks. This helps me diversify across country, currency, industry, and economy. Definitely a good way to hedge
  • 1PC
    08-12
    1PC
    Win 10 Tiger-coins
    I am holding 5-10 stocks, in 2 - 4 different sectors. Diversification means u will have Winners and Losers at different points in time [Happy] (Hopefully More Winners ๐Ÿ† [Happy]). After a month of decline, the portfolio shrinks [Facepalm]. Didn't Re-balance fast enough [Cry]. Learn Life lessons with each day from the markets ๐Ÿ˜„ As long as your portfolio is Not Deep Dead Done Deal, We can Live & Fight Another Day โค๏ธ
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