However, many investors find holding around 15 - 20 individual stocks spread over five to seven different industries gives them a well-diversified portfolio.
If you are just starting out, dont panic and think you have to get to this level all at once. This is a goal, not a starting point.
Even then, the most successful individual investor of all times, Warren Buffett is not sold on the value of spreading your money over a large number of stocks. However, since were not Warren Buffett, the prudent thing to do is protect yourself with a diversified portfolio.
What your stock portfolio looks like depends on several things:
- Your financial goals
- Your risk tolerance
- Your time horizon
If your strategy is conservative, your portfolio will favor stocks from industries that tend toward slow, but steady growth in all types of business cycles, such as:
- Consumer staples stocks
- Utility stocks
- Foreign stocks
- High growth stocks
- Technology stocks
Other Parts of PortfolioOf course, stocks are just one part of a diversified portfolio. Spreading your money over different asset classes to include bonds and cash as well as stocks gives you a better risk profile.
The more conservative investor will place more assets in bonds and cash, while the aggressive investor will do the opposite and fund stocks over bonds and cash.