One of the first questions you will likely encounter when beginning your S&P/ASX 200 Index (ASX: XJO) stock market investing journey is 'How many shares should I own in my portfolio?'
It's a fair question. After all, building out a portfolio is often one of the hardest steps on the journey. Chances are, most investors will only be able to afford a handful of ASX 200 shares and might spend years adding to that pile to properly build out a portfolio. But where to stop? That's what we'll be digging into today.
It's well known that one can have too few ASX 200 shares. Diversification is an important component of successful investing. If you aren't using ASX exchange-traded funds (ETFs) for this diversification, you'll need at least 10, but preferably 15, different companies to spread your risk across different industries, sectors, and corners of the economy. Remember, owning four different bank stocks, or four from any one sector for that matter, isn't diversification.
But too much diversification can be a bad thing, or at the very least, counterproductive. If you own 50 or 100 stocks, you'd probably just be better off owning an index fund instead and saving yourself some brokerage fees. After all, even if you have 10 or 15 ASX 200 stocks that prove to be market-beaters over a long period of time, this alpha will probably be diluted away to almost nothing if there are 50 other stocks in your portfolio.
Again, that means you may as well save yourself some hassle and just buy an index fund like the Vanguard Australian Shares Index ETF (ASX: VAS) instead.
But surely there's a happy middle ground?
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Too much or not enough? How many ASX 200 shares should be in a portfolio?
I think there is. Here at The Motley Fool, we generally advocate that investors own between 15 and 25 individual shares if you aren't using ETFs in your portfolio. In our view, this is the sweet spot between adequate diversification and index fund replication.
It leaves you adequate room to diversify across different industries, and perhaps even countries. Yet it also allows any prudent ASX 200 stock picks that end up beating the market to shine and lift your whole portfolio's performance.
Saying all of this, your own portfolio size will also depend on your personal situation, preferences, and risk profile. One investor's portfolio might suit them down to the ground, but not meet the needs of another. There's no 'one size fits all' solution here. At the end of the day, as long as you have taken the above basic principles into account, however many ASX 200 stocks you feel comfortable owning is probably the right number for you.
