Every Wednesday, we publish our ?Investor Toolkit? series. Whether you?re a new or experienced investor, these weekly updates are designed to give you specific advice on investing in the stock market and other investment topics. Each Investor Toolkit update gives you a fundamental piece of our investment strategy, and shows you how you can put it into practice right away.
Tip of the week: ?Starting out with a handful of good stocks and adding steadily to them as your portfolio grows in value is the way most successful investors reach their goals.?
The right number of stocks to have in your portfolio will vary over time. The number should grow as you advance in your investing career.
- The beginning investor: When they start out, most investors have only modest amounts of money to invest. Even so, you should invest at least several thousand dollars at a time, even if this means you buy only a handful of stocks. Otherwise, your broker?s minimum commission will work out to too high a percentage of your investment on each purchase.
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Pick at least one stock from each of the 5 sectors. At the outset, you should aim to invest in a minimum of four or five stocks. Our advice is to pick one from each of the five main economic sectors (Manufacturing & Industry; Resources; Consumer; Finance; and Utilities). If you cannot manage to buy a stock in each one, you should still look to cover most of them.
You can buy them one at a time, over a period of months or even years, rather than all at once. After that, you can gradually add new stocks to your portfolio as funds become available, taking care to spread your holdings across sectors in line with our advice.
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Add new stocks as your portfolio?s value increases. When your portfolio gets into the $100,000 to $200,000 range, you should aim for perhaps 15 to 20 stocks. If you?re married, it?s best to treat your family holdings as one big portfolio, even if you and your spouse keep your money separate (for our advice on treating all your investments as a single portfolio see last week?s Toolkit: View the article here). That way, you can be sure you aren?t operating at cross purposes, or investing too much of the family fortune in a single area.
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Use our 3-part advice as a guide. When you get above $200,000 or so, you can gradually increase the number of stocks you hold. When your portfolio reaches the $500,000 to $1 million range, 25 to 30 stocks is a good number to have.
Of course, you may fall a few stocks short of that range, or go a few above it, particularly when you?re making changes in your holdings. That won?t matter if you follow our three-part approach to investing: invest mainly in well-established companies; spread your money out across the five main economic sectors, and downplay stocks that are in the broker/media limelight.
Our upper limit for any portfolio is around 40 stocks. Any more than that and even your best choices will have little impact on your personal wealth.
COMMENTS PLEASE?Share your investment experience and opinions with fellow TSINetwork.ca members
Do you have many more stocks now than you had during the first few years you were investing? Was there a period during which you added a large number of stocks? Was there a period when you made significant cuts in your stock portfolio? Let us know what you think.
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