There's a saying in investing: don't put all your eggs in one basket.
It is simple, but it cuts to the heart of one of the biggest risks in investing — a lack of diversification.
Owning 10 ASX 200 stocks might feel like a diversified portfolio. After all, you're not betting everything on one company, right? And it is certainly better than owning just five. But is it enough?
The truth is that 10 stocks might still leave you vulnerable to risks that could derail your long-term goals. Let's unpack why.
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The concentration problem
With only 10 ASX 200 stocks, there's a good chance your portfolio will be heavily concentrated in just a few sectors. For example, if you hold several banks and miners, a downturn in financials or commodity prices could hit your portfolio hard. Even if your 10 picks span different industries, one or two poor performers can have a big impact on your returns.
For instance, imagine your portfolio includes two ASX 200 market darlings that hit rough patches. A profit downgrade, regulatory change, or shift in global demand could see those stocks fall 30% or more.
With only 10 holdings, that can drag down your entire portfolio — whereas a portfolio of 20, 30, or more stocks would be better insulated.
The balance: not too few, not too many
Of course, there's a flip side. Owning too many individual stocks can dilute your focus, make portfolio management a headache, and lead to something called diworsification. This is where you spread yourself so thin that no single holding makes an impact.
So what's the solution if you can't find enough stocks to buy? One easy solution could be a blend of ASX 200 stocks and ETFs.
If you want exposure to the market without having to handpick dozens of stocks, ETFs are your best bet. Funds like the Vanguard Australian Shares Index ETF (ASX: VAS) or the iShares S&P 500 ETF (ASX: IVV) give you instant diversification across hundreds of companies, sectors, and geographies.
By mixing a core holding in ETFs with a handful of high-conviction ASX 200 stocks, you can build a balanced, diversified portfolio that captures broad market growth while still giving you the chance to back specific winners.
Foolish takeaway
Owning 10 ASX 200 stocks is a good start — but it may not be enough to truly protect you from market risks and give you exposure to the full spectrum of investment opportunities.
The key is to find the right balance. Don't put all your eggs in too few baskets, but don't overwhelm yourself with too many either. Blending carefully chosen ASX 200 stocks with ETFs could be the sweet spot for long-term investing success.
