November 15, 2015

Diversification: what is the size of the ideal stock portfolio?

Everyone knows the old cliché about not putting all your eggs in one basket. A diversified portfolio might consist of different asset classes such as bonds, property and commodities, but what about equities? Exactly how many stocks are enough? Can you be too diversified, or should you aim to hold as many stocks as possible?
Even novice investors can grasp the simple logic underpinning the case for diversification. An individual stock may easily fall by 50 per cent or more in a short space of time, but a portfolio consisting of dozens of stocks is much less likely to do so.

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