How many shares should you own in your ASX portfolio?

Don't put all your eggs in one basket...

One of the key considerations when constructing an ASX portfolio is to consider how many different shares you should own.

First, I should make the distinction that some shares represent one company whereas others can actually represent dozens if not hundreds of shares.

For example, if you only invest in Commonwealth Bank of Australia (ASX: CBA) shares then your entire portfolio is tied up with one business and all of your investment is tied to the success of one bank (plus the Australian housing market frankly).

Investing additional money into Westpac Banking Corp (ASX: WBC) is barely adding any diversification. It’s exposed to the same risks.

Some of the world’s best investors believe that you can create adequate diversification with a small number of investments – perhaps five businesses, perhaps ten businesses, maybe a few more. As long as each of those shares has different opportunities and different risks then you could get away with just owning ten shares.

For example, your portfolio could consist of MNF Group Ltd (ASX: MNF), Pushpay Holdings Ltd (ASX: PPH), Appen Ltd (ASX: APX), Costa Group Holdings Ltd (ASX: CGC), REA Group Limited (ASX: REA), Paragon Care Ltd (ASX: PGC), InvoCare Limited (ASX: IVC), Reece Ltd (ASX: REH), Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) and Tassal Group Limited (ASX: TGR). This would be a diverse portfolio with completely different operational risks.

You could get away with holding just one share with an exchange-traded fund (ETF), like Vanguard MSCI Index International Shares ETF (ASX: VGS), that provides diversification with its underlying holdings.

Listed investment companies like WAM Capital Limited (ASX: WAM) and Australian Foundation Investment Co. Ltd. (ASX: AFI) also have many underlying share holdings which mean they provide more diversification than a single company like Commonwealth Bank.

Foolish takeaway

For me I aim to have less than 30 holdings, it’s actually closer to 20 right now and some of those are actually LICs or ETFs. You need to find the right balance for your risk preference and portfolio.

As part of my 30 shares I’m glad that I own two of these top stocks because I believe they’re quality growth options and also provide good diversification.

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Motley Fool contributor Tristan Harrison owns shares of COSTA GRP FPO, InvoCare Limited, Paragon Care Limited, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended COSTA GRP FPO, MNF Group Limited, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of Appen Ltd and PUSHPAY FPO NZX. The Motley Fool Australia has recommended InvoCare Limited, Paragon Care Limited, REA Group Limited, and Vanguard MSCI Index International Shares ETF. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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