For many people, investing in stocks can be an intimidating and overwhelming process. Deciding where to put your hard-earned money is no easy task, but diversifying your portfolio is a must for ensuring that you protect your wealth and achieve financial success. However, the question of “How many stocks does it take to be truly diversified?” remains unanswered for most novice investors who lack the experience or knowledge base necessary to make informed decisions. In this blog post, Anthony Pellegrino discusses what constitutes a diverse investment strategy and provides helpful tips on how you can ensure that you have covered all angles with your stock dealings.
How Many Stocks Does It Take To Be Truly Diversified? Anthony Pellegrino Answers
When it comes to investing, diversification is key, says Anthony Pellegrino. But how many stocks do you actually need to be considered truly diversified? According to experts in the field, there isn’t an exact number that applies to everyone. Instead, your portfolio should be tailored to your specific investment goals and risk tolerance.
The concept of diversification is based on the idea that if you invest in multiple stocks and sectors, it will spread out any potential losses and make for steadier gains over time. This can help minimize risk while still giving you potential returns on your investments. To take advantage of this strategy, some investors choose to have a portfolio with just a few stocks from different industries or countries. Others might prefer to have more diverse holdings, with a larger number of stocks from a variety of industries and geographies.
When constructing a portfolio, it’s important, as per Anthony Pellegrino, to look at the overall risk profile and make sure that you are adequately diversifying across asset classes. In general, most advisors recommend having anywhere between 5 to 30 stocks in your portfolio. Having too few stocks can mean not enough diversification, while too many might lead to over-diversification, which could hamper returns.
Research also suggests that if your portfolio contains fewer than ten stocks, there is still a relatively high degree of correlation among them, meaning that their performance may be similar in certain situations. To get the maximum benefit from diversification, experts generally agree that you should have at least 15 to 20 stocks in your portfolio.
For example, one investor might have a portfolio with five large-cap stocks from the U.S., three mid-cap stocks from Europe, and two small-cap stocks from Asia. This would be considered well-diversified across asset classes and geography. Another investor might have their portfolio split between 15 large-cap U.S. stocks, four international large-caps, four mid-caps, and one small-cap stock. Again this would provide adequate diversification for someone seeking steady returns over time with minimal risk.
Anthony Pellegrino’s Concluding Thoughts
Overall, it’s important, as per Anthony Pellegrino, to remember that there is no “one size fits all” answer when it comes to how many stocks you should own in order to be diversified. The right number for you will depend on your individual investment goals and risk tolerance. Working with a financial advisor can help you determine the best way to construct your portfolio so that you are getting the desired level of diversification.