How many stocks should you buy? This is something you need to know – investing for beginners
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Today we’re getting back to investing basics. Investing 101. How many stocks should you own? Whether you like dividend investing, or you focus on growth stocks, if you own too many stocks then a good performing stock will have very little affect on growing your money because you’ve spread your money way too thin. But if you own just a few stocks, you are taking on a huge risk where you could either make a lot of money, or lose all your money. When it comes to the finance community, this is a fiercely debated question, and no one seems to know the answer.
The most important variable to answer this question is a word you may have heard before – it’s called – DIVERSIFICATION. It means you take your money, and instead of putting it in one place, you spread it out, across multiple different stocks from different TYPES of sectors, and different types of industries. Doing this means you protect your money from going up and down all at once. It’s important because what it does, is it reduces your risk to the volatility of the stock market.
The best amount of stocks to own is whatever it takes, to achieve “diversification”. The problem is, no one can agree as to what that means. Diversification is a sliding scale. In the world of money investing nerds, if you ask them “what do you consider diversified”, you’ll very quickly find that there’s many different opinions but the most popular amongst them, is that you should own between 20 to 30 stocks. But is that really fact?
In 1970, the Journal Of Business published what would become that popular opinion when they discovered that you could essentially recreate the benefits of diversification that you’d get with owning the entire New York Stock Exchange by owning only 32 stocks. That study showed the risk of owning around 30 stocks was low enough to compare to owning the entire New York Stock Exchange. But, that was an old model. Using modern calculations, what they found was that risk reduction, is not necessarily the same as diversification, even though that’s one of the investing benefits.
In an updated study done by Sur & Price, they used the R Squared formula. “R-squared will give you an estimate of the relationship between movements of a dependent variable based on an independent variable’s movements.” Put simply, If a stock has a LOW R squared result, it means that specific stock, does not generally follow the stock market’s price performance. A high r squared result, means the stock price generally copies what the overall stock market is doing.
When analyzing the stock market, 39% of stocks were unprofitable, 18.5% of stocks lost 75% or MORE, 64% of stocks performed worse than the Russell 3000 index (which is something that tracks the entire US stock market), and 25% of stocks were responsible for all of the stock market’s price increases. Think about that for a second, 1/4 of stocks were responsible for all the price increases.
The general rule of thumb is that as a beginner, it’s better to own more stocks. In fact, it’s better to buy into an exchange traded fund that tracks the overall market like VOO or VTI. With just that one stock, you will own thousands of stocks, in just one piece of stock. As you become better and you can devote more time to this, if that’s something that you’re interested in, then you should own FEWER stocks.
If you own an ETF that tracks the broad S&P500 stock market, you will outperform the majority of professional stock pickers. For my portfolio, I’ve essentially recreated my own index fund that I have more control over, and it’s a little cheaper, but the downside is that I’m basically doing as good as the stock market, so I might as well own an index at this point if I want a similar result – which is also what I’m focusing more on with stocks like SPHD that are monthly dividend payers.
Maybe you want to take more risk, in which case, you might do better sticking to a stock portfolio of only 10 stocks that are heavily weighted in the tech sector.
https://www.investopedia.com/articles/stocks/11/illusion-of-diversification.asp#:~:text=The%20idea%20of%20five%20stock,is%20actually%20closer%20to%2030
*Links above include affiliate commission or referrals. I’m part of an affiliate network and I receive compensation from partnering websites. The video is accurate as of the posting date but may not be accurate in the future.
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I am holding 30 stocks in Indian stock exchange
Man he wasn't joking about Hertz stock. It's practically worthless a year after this video.
can you just get to the point in your videos and dont make them soo damn long? and dont try to be funny when youre jokes are so lame. it does not make you cool.
just tell us how many stocks to buy, which apparently what the video is supposed to be about but fails to address.
this was an annoying watch.
I have 40 stocks. I keep wanting to trim back, but I like all of them. So I guess I'll just keep them for now.
I got lost then u lost me then I got even more lost with your last explanation lol
never knew btc trade could be this challenging. kept running back to these youtube videos to learn more about this. your video is indeed helpful. thanks
Ughhhh I have issues with being able to pay attention and keeping focused… the random magic tricks and your upbeat personality made me watch until the end!!! You’re Golden!!! 😩😁😌
I’m high and the vibe of this video is beautiful and I’m only like 2min in
I will only hold Realty income ,and put all my money in there to receive bigger and bigger monlty dividend 😁😃
i own 0 stocks
I have been watching some videos and I was thinking about investing, but still don't know where to start from.
Having money invested in bitcoin/cryptocurrency is probably one of the most financially wise decision anyone should make …cos your money works for you thereby multiplying it's value
never knew btc trade could be this challenging. kept running back to these youtube videos to learn more about this. your video is indeed helpful. thanks
Wow, I just counted and I’m into 50 different stocks, ETFs and index funds! I only own one share outright 😂 Ford. Thank goodness for fractional shares and access to them! I own 3-4 in crypto, too. Thank you for teaching me so much!
Seems better to use M1 and basically create your own ETFs that don’t hold all the junk like JC Penney that standard ETFs hold.
100. But I want to reduce
THE RICH STAY RICH BY SPENDING LIKE THE POOR AND INVESTING WITHOUT STOPPING THEN THE POOR STAY POOR BY SPENDING LIKE THE RICH YET NOT INVESTING LIKE THE RICH.
…..
I majored in walking and minored in chewing gum at Boot Scootin Boogie State University. Its a very prestigious University. Garth Brooks was my favorite professor and George Strait was the Dean.
Or you could buy "developed world" or "emerging world" ETFs.
Bitcoin is the most profitable investment online if only you trade with a professional broker
You have been the best and I thank my friend so much for introducing you to me, now am debt free aria_mateofx on Instagram is the best guide for all beginners
I buy only one stock of everything. Just one. Why? Because I like the stock.
23 Stocks, mostly not tech. Love the magic!
175 different stocks..No young stocks just blue chip and or S&P 500s w/ dividend that reinvest. Others include cannabis stocks too.
20-25
Please how can invest in bitcoin trading on my own, I have been practicing on my demo accounts
algorithm
Just started investing. I just turned 50 but luckily saved some, inherited some, and my parents handed over the reins of mutual funds to me more than a few years back. Should have started earlier However, Im very lucky to have what I do so I just have to learn to manage and grow. Thank you Andrei for the channel.