If you are an investor trying to make your way in the stock market, you may be tempted to hold a large number of stocks. This would keep you engaged but you may lose focus. So how do you know whether your strategy is right or wrong? Let us check.
Are you holding too many stocks?
Tracking stocks involves examining reports, reading news stories and making your own personal investment analysis. This indeed is time consuming and requires homework. You should be committing about one hour per week per stock. Anything less than that and you might be playing your luck. So, do not add more than 15 stocks in your portfolio.
What is the golden rule?
Ideally, in a good market scenario, one should track two sectors at a time. From a long term perspective, it is advisable to split your portfolio in following ratio – 50% into large-caps, 30% into mid-caps and 20% into small-caps. Each stock should range between 7%-15% of your total portfolio value. This would mean you may have handful of stocks in your portfolio.
What could be the investment strategy?
- Firstly, never place all eggs into the same basket or have too many baskets with few eggs each. Invest into two-three sectors at a time and at least into two-three stocks in each sector. Diversifying further would involve more time-commitment for tracking stocks and may become like your part-time job.
- Secondly, don’t make your investment too big or too small in a stock that it either becomes insignificant or burns holes into your pocket. As a good investor, try not to invest less than too low or too much of your portfolio value into any stock.
- Thirdly, always remember to calibrate your portfolio timely. As you buy and sell into the market, your portfolio may get skewed. Do balance your portfolio at regular intervals.
- Fourthly, don’t always invest all your savings into stock market. Do put in your additional savings into bonds, gold, silver, mutual funds, real estate market, etc. This will help you keep your investment portfolio balanced and reduce the risk.
Key Take Away
Holding too many stocks requires time commitment to track the market. If you are not able to spend adequate time on your investment analysis, you may fall victim to speculative trading. Also, focusing on few stocks has its own disadvantages and increases your investment risk.
Design your portfolio in a balanced manner and keep revisiting it every few months. If you lack market knowledge or have limited time to take investment decisions, avail professional advice for growing your money safely and sustainability.