How Many Investments Are Too Many? Is More Better?

by Stacy Francis, CFP®, CDFA

Another question I get all the time is, how many investments should I go for? 2, 5 or 1,000? With a virtually unlimited number of securities available, and a limited budget (for most of us, anyway), how do you get the most out of your money? When it comes to investment positions, what’s the magic number?

Of this, the wise ones dispute. Of course, to a certain extent it should depend on the number of promising investments out there. At times, thirty different stocks, funds, or bonds can look promising, while at other times it can be as little as three or four. You may have a very specific idea of what kinds of industries and companies you’d like to trust with your cash, or you may want to diversify lots and lots to dilute risk and feel safe.

Another factor you need to consider is of course budget. If your total investment capital is, say, $5,000, a diversified mutual fund or ETF (Exchange Traded Fund) might be the better option. With only $5,000 it will be difficult to get exposure to the broad market. If, on the other hand, you have several million bucks to invest, you can create your own mutual fund by purchasing many different stocks and bonds. Fifty positions of $20K each may be the answer, or twenty positions of $50K. Or fifteen positions of various sizes depending on what securities you like the most.

It is true that if you own every fund out there, you will own all the winners. The problem is, you will own all the losers too. The key is to look at the fundamentals, identify your reasons and — together with your advisor — find the one, or two, or ten, or twenty, investments that work the best for you.

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