Australian investors building a portfolio for the first time may be wondering how many stocks they should invest in.
Diversification certainly plays a role, but it ultimately comes down to the number of assets you’re comfortable monitoring.
There’s no one-size-fits-all approach to investing in the stock market, but most Australian investors tend to hold 10 to 30 stocks in their portfolio. Investors new to the market may prefer a smaller portfolio of 10 stocks, give or take — while more experienced traders may maintain a portfolio of 30 or more.
In their book, Investment Analysis and Portfolio Management, financial analysts Frank Reilly and Keith Brown suggest the sweet spot lies between 12 and 18 stocks — a range that successfully capitalises on 90% of the benefits of diversification. Others, like Burton Malkiel, author of A Random Walk Down Wall Street, suggest that investors need closer to 20 stocks to reduce risk by up to 70%.
The more positions you maintain, the more maintenance your portfolio requires, including market research and staying up-to-date on industry news. The bottom line? You need to monitor the performance of everything you purchase. If you’re not willing to keep an eye on it, don’t buy it.
How popular is share trading?
34% people have invested in shares or cryptocurrencies, according to our consumer sentiment tracker. 43% of men said they have invested while only 25% of women have invested in shares or cryptocurrencies. NSW and Victoria are the most popular states for share trading.
| Response | 75+ yrs | 65-74 yrs | 55-64 yrs | 45-54 yrs | 35-44 yrs | 25-34 yrs | 18-24 yrs |
|---|---|---|---|---|---|---|---|
| Banking and finance | 28.36% | 17.71% | 16.05% | 12.78% | 12.85% | 12.9% | 5.26% |
| Mining | 22.39% | 13.14% | 14.2% | 11.11% | 10.04% | 9.68% | 4.21% |
| Telecommunication | 22.39% | 10.86% | 9.88% | 7.78% | 5.62% | 5.53% | 2.11% |
| Iron Ore | 11.94% | 2.86% | 7.41% | 5% | 1.61% | 2.3% | 2.11% |
| Healthcare | 10.45% | 9.14% | 6.79% | 7.78% | 8.43% | 6.45% | 2.11% |
| Food and beverage | 8.96% | 7.43% | 7.41% | 7.78% | 5.22% | 3.23% | 2.11% |
| Energy | 7.46% | 9.14% | 11.11% | 9.44% | 6.83% | 8.76% | 5.26% |
| Lithium | 7.46% | 2.86% | 4.94% | 5% | 4.42% | 5.07% | 1.05% |
| Property | 7.46% | 7.43% | 6.17% | 4.44% | 4.82% | 2.76% | 1.05% |
| Technology and IT | 7.46% | 6.29% | 4.32% | 10% | 15.66% | 12.44% | 3.16% |
| Coal | 5.97% | 3.43% | 3.09% | 2.78% | 2.41% | 1.38% | 1.05% |
| Gold | 5.97% | 3.43% | 4.94% | 6.11% | 3.21% | 5.07% | 6.32% |
| Biotechnology | 2.99% | 2.29% | 3.09% | 3.89% | 2.41% | 1.84% | 1.05% |
| Renewable energy | 1.49% | 1.14% | 4.32% | 3.33% | 4.02% | 4.61% | 4.21% |
| Artificial Intelligence | 0.57% | 1.85% | 2.78% | 2.81% | 2.3% | 1.05% | |
| Cannabis | 0.62% | 2.22% | 1.2% | 1.38% |
If you’re short on funds and new to the market, there are several investment options with built-in diversification. Each of the following can be purchased through a brokerage account in Australia:
When you pour all your money into a single stock, the success of your investments hinges entirely on the performance of a single company. While you can earn potentially higher returns, you may also face equally sizable losses.
Think your investments are safe with blue-chip stocks, like Apple, Wal-Mart or Disney? Think again. No company, regardless of sector, industry or time in business, is risk-free. And that’s because all stocks are exposed to company risk and market risk.
Company risk, or unsystematic risk, is the risk associated with investing in a single company. And while it’s typically more of a gamble to invest in startups and small-cap stocks, there are risks to investing in larger companies, too.
Market risk, or systematic risk, applies to all companies, regardless of size, as some events — like natural disasters and political upheavals — have the potential to impact the entire market.
The best way to insulate your portfolio from potential loss is to diversify your investments, holding multiple stocks across a spectrum of industries. It’s impossible to avoid market risk, but by investing in more than one company, you reduce your portfolio’s company risk exposure.
Sarah, 29, from Melbourne, went all in on a single lithium stock, investing her full $20,000 in early 2023. At first, it rose 25%, but when lithium prices dropped and the company missed earnings, the stock fell 45%. Her portfolio dropped to $11,000. Had Sarah split her money evenly across 5 different stocks, her losses would likely have been significantly less.
There are numerous ways to manage your portfolio and reduce the risk of loss.
If you need help building a portfolio from scratch, consider a financial adviser. There are numerous investment platforms that offer portfolio management services, but you’ll pay a fee to access the service — typically a percentage of your total assets.
Your adviser will sit down with you to discuss your investment goals and help you determine your risk tolerance. Once your portfolio is funded, your adviser takes care of the rest. You may meet with your adviser once or twice a year to discuss your investments, but you won’t be actively managing your portfolio. This is an option best suited for hands-off investors.
If you do want to manage your investments but would prefer some guidance before you pull the trigger, consider hiring an investment fiduciary. This person can provide occasional guidance and feedback on your portfolio while leaving the buying and selling process in your hands.
Robo-advisors are digital financial advisers that rely on algorithms to manage the assets in your portfolio. They operate in much the same way as portfolio management services overseen by human advisers. Your investments are selected for you at the robo-advisor’s discretion and you can monitor your portfolio by logging into the platform.
If you’re eager to wet your feet in the world of investments, open a self-directed brokerage account and build your portfolio yourself. Hand-picking your own stocks means doing your homework, so explore the research tools provided by your trading platform as well as third-party options like free stock screeners and investment newsletters.
Learn how to value a stock before adding it to your portfolio by comparing data metrics like price-to-earnings ratios and free cash flow. And make sure your money is diversified across assets, market sectors and industries to reduce the risk of loss.
"Diversification is important, but there’s a point where it becomes counterproductive. Unless you’re managing a fund, 15 to 20 quality stocks across sectors is usually enough to reduce risk while keeping your strategy focused "
Small portfolios are easier to manage, but too few stocks can increase your company risk exposure. Ultimately, the ideal number of stocks for your portfolio comes down to how many positions you feel comfortable maintaining.
Explore your investment options across multiple trading platforms to find the account that best meets your needs.
We currently don't have that product, but here are others to consider:
How we picked theseWe've scored over 30 share trading platforms assessing them for their core features, fees, customer experience and accessibility. Our experts give each platform a score out of 10.
Important: The standard brokerage fee displayed is the trade cost for new customers to purchase $1,000 of either Australian or US shares. Where a platform charges different fees for both US and Australian shares we show the lower of the two. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.
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