There’s no one-size-fits-all for what a good portfolio looks like. But generally speaking, a smart portfolio is one designed to withstand market ups and downs. Depending on whether you’re focusing on active or passive investments, your portfolio will look very different.
What is a good investment portfolio size?
There’s no single correct number of stocks to own, though the bigger the number, the lower your risk. According to Investopedia, your portfolio is safer from market ups and downs if you own 10 stocks than if you own just two.
While the final numbers of investments you put your money on depends on many factors, holding at least 15-20 stocks in your portfolio is a good option.
Since the larger the number of stocks, the harder it is to keep track of investments, choosing index funds or ETFs might be a better option. This allows you to diversify with fewer transactions and easier management.
What should a diversified portfolio look like?
Investment portfolios shouldn’t be completely static. How old you are and where you are in your financial journey should help you determine what to invest in. The stocks that meet your investment goals today might not be the same a few years down the line.
Younger investors might be willing to take higher risks with their choices, but a buy and hold strategy has shown to return better gains. This strategy means you don’t have to spend time trying to time the market. You also don’t make emotional choices over your investments. You simply buy stocks or ETFs and hold them for years.
This doesn’t mean you should ignore your portfolio. In fact, it’s a good idea to review it once a year. Take a look at your assets and consider reallocating or adding some, depending on your current financial situation.
What should I have in my investment portfolio?
While diversifying your portfolio can’t guarantee gains, it can maximise your potential for returns. Plus, it is more likely to protect you from losses.
A properly diversified investment portfolio should include a mix of:
ETFs and index funds
This gives you diversification without the extra work of tracking stocks individually. Options like an S&P 500 Index fund allow you to grow your portfolio by investing in a number of shares from different companies.
Buying single stocks (think Amazon, Netflix, Apple) can be tricky and increases risk because of a lack of diversity. Of course, if you have a large amount of money to invest, you might be able to diversify from the start, but this will increase the time you spend monitoring industry and market trends.
No matter what you’re buying, always try to apply the ‘5% rule’. This means you shouldn’t allocate more than 5% of your portfolio to any single security to minimise risks.
Alternative investments provide the option for more diversification, but they can also add risk. Things like Bitcoin, precious metals and hedge funds tend to be a lot more volatile than other investments. Naturally, this means that your risk of losing money is higher. If you want to add these to your portfolio, stick to the 5% rule.