– Different portfolio types require different approaches
– Dividend portfolios should be VERY safe
– Diversify across sectors, industries, and countries
– Many professionals recommend between 20-30 stocks
Previously, I spoke as to how many different stocks one might consider having in their portfolio. Like all good responses, the answer is “it depends”.
It depends on your goals, tolerance to risk, capital, and interests (to name a few). But for this post, I’ll discuss how many stocks most investors hold in dividend portfolios (other portfolio types – including growth and value – will be discussed in later posts).
What Is A Dividend Portfolio?
Since risk can be systematic (affecting the market as a whole) or unsystematic (affecting a single firm), many investors create portfolios to reduce the effects of unsystematic risk. While it does not guarantee the elimination of loss, most financial professionals agree that diversification can help manage risk to ensure long-term growth and success (an important idea explained in Modern Portfolio Theory).
A dividend portfolio is a collection of securities that pay regular income – on a monthly, quarterly, or annual basis – that is diversified in such a way that the income is relatively stable. Dividend stocks are a popular way for investors to increase their income by doing minimal amounts of extra work.
Finding the right number of stocks to hold in a dividend portfolio isn’t an easy question to answer, and many investors would give different responses. However, there are some guidelines that can be used to get a good idea of what that answer may be.
A dividend portfolio is a collection of securities that pay regular income – on a monthly, quarterly, or annual basis – that is diversified in such a way that the income is relatively stable.
How Many Stocks Should I Have?
Remember this: you are buying dividend paying securities to build your income over the years… this is NOT day trading. This is the classic “buy-and-hold” strategy to investing.
That being said, many sources state that you should have between 20-30 dividend paying stocks, depending on the size of your portfolio. For myself, I like to have about $5000 in for each dividend paying security, and then repeat the process for different stocks in different sectors to help eliminate the risk of the dividend being cut or cancelled. Remember, dividends are a privilege, not a right!
Many sources state that you should have between 20-30 dividend paying stocks, depending on the size of your portfolio.
When deciding for yourself how many stocks to have, keep in mind the following:
Having fewer stocks means:
- fewer trade fees if/when you decide to sell
- fewer companies to have to watch/keep up to date with
However, having more stocks means:
- more diversification across industries, sectors, and countries
- greater portfolio resilience to unsystematic risk
Just because a common belief is to hold 20-30 stocks, doesn’t mean it is a rule that is set in stone; different experts will give different answers. When you make a decision, keep in mind the usual factors:
- your tolerance to risk
- the size of your portfolio
- your timeframe
- your investing style.
If you are new to investing, the best thing you can invest in is your financial intelligence. Get some books and read up before diving into the markets.
Be smart, and as always, take care of your future self!