Try to bal­ance your port­fo­lio

But there are ques­tions you should an­swer first

USA TODAY US Edition - - MONEY - Matthew Frankel

Ques­tion: How many stocks should I own in my port­fo­lio to en­sure that I’m prop­erly di­ver­si­fied?

An­swer: This is an ex­cel­lent ques­tion and touches on some im­por­tant con­cepts for newer in­vestors to learn. If you own too few stocks, your port­fo­lio will not be well-di­ver­si­fied, and your re­turns will be far too de­pen­dent on any one stock’s per­for­mance.

On the other hand, if you own too many stocks, great per­for­mance from one or two won’t make much of a dif­fer­ence to your re­turns and you might as well in­vest in mu­tual funds in­stead.

Un­for­tu­nately, there’s no great an­swer to this ques­tion, and fi­nan­cial pro­fes­sion­als often have dif­fer­ing opin­ions. Per­son­ally, I sug­gest at least 10 to 15 stocks in your long-term in­vest­ment port­fo­lio, and 20 to 30 seems to be an ideal amount.

Hav­ing said that, there are some ques­tions that may be even more im­por­tant than the num­ber of stocks in your port­fo­lio.

For in­stance:

❚ Are your stocks spread across a va­ri­ety of dif­fer­ent in­dus­tries, or are you highly lev­ered to one type of busi­ness? You could own 50 stocks, but if they’re all banks, you aren’t re­ally di­ver­si­fied at all.

❚ Re­gard­less of the num­ber of stocks you own, do you have too much money in­vested in any one of them? If you own

30 stocks, but 50 per­cent of your money is in your three largest hold­ings, you may want to spread it out a bit.

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