How many stocks should a beginner buy?

How many stocks should a beginner buy?

A new investor should buy a minimum of 10 to 15 different stocks for diversification. Choose the number of stocks depending on your risk tolerance. The less stocks you buy, the more influence a single stock has over your entire portfolio.

Imagine, hand-picking a few select stocks with amazing growth potential. Knowing how to pick the right stocks can lead you to outperforming the market.

You could even find stocks which increase your portfolio by 40%. The S&P 500 only returns around 10% annually. 

What a difference! 

Luckily for you, I’m going to show you how many stocks a new investor should buy. You want to find stocks that will continue to grow in value, but also be prepared for poor performance. Diversification is key for protecting your Investments.

Key Takeaways

  • Aim to purchase a minimum of 10 to 15 different stocks with diversification in mind.
  • Optimal portfolio performance is typically achieved by holding between 20 and 30 different companies.
  • Having more than 60 stocks can decrease your overall return, but increase diversification.
  • Some brokerages will allow you to buy fractional shares so you don’t have to afford the full share price.
  • Always buy stocks with a long-term outlook.

20-075 -How many stocks should a beginner buy

This article may contain affiliate links which pays a commission and supports this blog. Thank you for your support!

How many stocks should a beginner buy?

New investors should seek to buy a minimum of 10 to 15 different stocks. The less diversification you have in your portfolio the more influence a single stock has. Too many stocks and you may find yourself struggling to monitor performance.

Diversification is key when it comes to investing. The goal is to purchase quality stocks which you believe will increase in value over time. However, not every company will perform and most will have bad years.

10 to 15 different stocks provides a minimum level of diversification. Assuming you’ve done your research, you have picked 10 to 15 stocks which should increase in value over time.

Now let’s assume you’ve purchased 10 stocks at $100 each. Each stock holds an equal weight in your portfolio. 

Two of the stocks take a 50% hit due to market conditions or missed earnings. The remainder of the stocks increase in value for an average of 20%. You have lost $100 on two stocks, but gained $160 on the other eight.

Your portfolio was diversified, so you came out ahead. Most beginners mistakenly choose two or three stocks. Poor performance in any one of the stocks could cause negative returns.

Purchasing too many stocks can be difficult for you to manage. You’d have to be keeping up with each company’s ongoings, which can be difficult with many stocks. One company may be going bankrupt, but you didn’t know because there’s too many to manage.

If you want to purchase many stocks, consider exchange traded funds or ETFs. ETFs are a collection of stocks offered for a low price.

How many stocks is too much in a portfolio?

Decade-long studies show that the optimal number of stocks in a portfolio is between 20 and 30. However, additional research reveals that some portfolios perform better when they contain 60 stocks. Experiment with 20 to 60 stocks to find your magic number.

Diversification, risk, and reward

Yes, diversification usually reduces your portfolio’s risk. However, your risk tolerance may be higher or lower than your fellow novice investors. More diversification is safer, but it can dampen your overall returns.

Some investors may put the bulk of their portfolio into a select few companies. Should the companies perform well, so would your overall returns.

For example, Let’s assume someone put 100% of their portfolio into Costco stock. Over the last five years, Costco returned 215%. Costco has significantly outperformed the S&P 500, which returned 57% in the same time frame.

The S&P 500 has more companies, which means it’s more diversified. A select few companies will bring in the majority of investment returns. Most companies will perform ok or poorly, dragging your portfolio’s performance down.

While unlikely, Costco could go bankrupt tomorrow. You wouldn’t want to tie a significant portion of your investments into one company as investing carries risk.

Therefore, individual stock investors should seek a balance between diversification and stock performance. Don’t have too many companies, or your performance suffers, but don’t have too few companies.

What are the best stocks to buy for beginners?

Beginners should look for stocks with earnings per share growth and a history of share price increases. Ideally, new investors should be familiar with the company and its operations. Avoid purchasing shares based on price, but rather, invest in quality companies.

Earnings growth is one of the most important factors for growth. Look for companies with positive earnings and forecasted increase in earnings per share. Generally, if the earnings per share is growing then so will share price.

You should also look at a company’s share price history. Ideally, the share price has been increasing over the last 10 years. However, past performance is not a guarantee of future success.

New investors should be familiar with the company they’re purchasing. I know Walmart and would most likely hear news which impacts Walmart’s business. I’m not up to date on the ongoings of pharmaceutical companies and probably shouldn’t invest.

Most new investors want to buy stocks based on price. They want to purchase as many shares as possible, but cheap stocks are cheap for a reason. Higher quality stocks tend to be more expensive.

Assuming you have $100, you could buy 20 shares of a $5 stock or 1 share of a $100 stock. 20% growth on either is still a gain of $20. Don’t focus on share price, but rather, percentage gain.

Remember, at the end of the day, you are purchasing a stake in a company. You want to purchase companies who are winning.

Click to Tweet! Please Share!Click To Tweet

How many shares should I start with?

New investors should focus on diversifying their portfolio over a certain number of shares. Buy different stocks to diversify your portfolio and then add more shares. Remember, it is more important to buy one share of a quality company than many shares of a poor performer.

Start with diversifying your portfolio. When you’re just starting out you’ll most likely not have a lot of cash to invest. Therefore, find the companies you want to invest in and try to buy at least one share each.

As you get more money, try to keep your portfolio diversified. You don’t want one company to have too much weight in your portfolio. For example, some people try to limit their top holding to 5-10% of their portfolio.

As you gain experience, you can add more companies to your portfolio. If you’re happy with the level of diversification, keep adding shares.

How many shares should I buy to make a profit? 

Split your investment capital between multiple stocks. Don’t focus on buying a certain number of shares but properly diversifying your holdings. Most investors should aim to keep individual stocks under 5% of their overall portfolio. 

Keeping individual stocks under 5% of your portfolio will prevent one company from having too much influence on your overall portfolio.

Say you have $5,000 to invest. The price per share of the stock you’re interested in is $100. And the stock only allows whole share purchases.

At that price, you could buy 50 shares. However, you won’t make a profit unless the stock price starts to rise above $100 a share or it pays a dividend. 

Therefore, you should buy two company shares to stay under 5% asset allocation. Technically, 5% of $5,000 is $250, which would be 2.5 shares. You could buy 2.5 shares if your brokerage allows purchasing fractional shares.

How many stocks should I own with $10k?

When you have $10k to invest in stocks, aim for at least 20 individual securities. Securities can be separate stocks, mutual funds, or exchange-traded funds that contain a variety of stocks. 

Let’s say you decide only to buy mutual funds.

One mutual fund could have ten stocks while another only invests in five securities. So, you’ll want to find another fund that is made up of at least five stocks. 

However, your pick of stocks or funds will depend on the price per share.

Also, some brokerage firms charge commissions or fees. You can avoid this expense by going with online trading firms. This is the DIY route, so you’ll need to do your homework and know what the numbers mean.

How many stocks should I own with $100k?

With $100k, you’ll have more resources to buy additional stocks. You’ll also be able to diversify more. You should have over 30 stocks or individual investments in your portfolio at this stage.

That being said, it is possible to be too concentrated with $100k worth of stocks. For instance, you could have your money in two or three more expensive stocks. 

You could also have too many investments from the same industry or fund type.

If you have $100k to invest, it may be best to consult with a financial advisor. Your investment strategy will depend on your age, retirement goals, and personal financial situation. Advisors can help steer beginners with many resources in the right direction.

Say you want to retire in 10 years. It might be better only to invest half of $100k in stocks and the other half in bonds. The mutual funds and stocks you choose might also need less risk and lower returns.

Can I buy one share of stock?

Yes, you can buy one share of stock. Most investments permit this, as long as you pay the exact price per share. When a stock costs $13 per share, you’ll fork over $13 exactly.

However, some stocks let you purchase fractional amounts or less than a full share. Let’s say you want to buy shares that cost $13. But you have $20 to invest.

In this case, you’d buy 1.38 shares. 

You can also buy one share of stock at a time or fractional shares if it’s allowed. This is common among investors with bi-weekly or monthly 401(k) deductions.

Essentially, they’re buying a percentage of their 401(k) portfolio at a time. When 5% of their pay is deducted each pay period, that money goes into the 401(k). But the investments they buy will be according to their settings.

Say the person wants 10% to go to a large-cap fund and 90% to another investment. Their bi-weekly deduction may amount to $100. $90 will go into one fund and $10 to the large-cap investment.

But $90 may only buy one share in the fund, and $10 might buy .33 shares in the large-cap fund. This will continue until the employee changes their investment mix.

Can one share of stock make you money?

It’s not common, but it’s possible to make money off one share of stock. Say you buy a share for $10. You hold that share of stock for 30 years and realize a return of 15%.

You’ll earn $1.50 from your return. But if you sell the stock for $100 after 30 years, you’ll make another $90. It all depends on fluctuating prices and returns.

At the same time, it’s possible to experience a loss from a single share of stock. Perhaps that stock you bought for $10 has a negative return. After 30 years, the negative return is -0.5%.

You lose $0.50 on your investment. You also decide to sell the share, but the price per share hasn’t budged. As a result, your total loss is $0.50.

Say you bought more than one share of stock. This is when you’ll see the compound or multiplying effect of positive and negative returns. Let’s take the first example above but increase the shares to five.

You’ve now made $7.50 in returns and $450 from selling those shares for a total profit of $457.50. But in the loss example, it would go up to $2.50.

How much can you make off one share of stock?

This all depends on the rate of return over time, and the price per share changes. However, don’t expect huge earnings unless there’s been a dramatic shift in the price. Sometimes this happens within a short time frame, but you usually have to hold stock for a while.

Another possibility of making money is through stock options. These are usually given through an employer in the company’s stock. You can cash them in when you leave your job or before.

You may also have shares you inherited from your family. This could prompt you to sell quickly and cash out. So, the stock price may already be inflated or high enough to make a profit.

Hypothetically, if one share of stock costs you nothing through a stock option or inheritance, you could make a lot. Say that stock is selling for $300 or even $500 a share. Selling it would get you that exact amount if there aren’t any fees.

Fees and commissions

You don’t get to choose the brokerage with stock options and inheritances. So, fees and commissions can eat into your profits. Be sure to research or ask about any selling costs before you cash out.

Can I buy less than one share of a stock?

Some brokerages will allow you to purchase fractional shares. A fractional share allows you to own a portion of one share. Therefore, you don’t need to purchase the entire share. Purchasing fractional shares allows you to diversify and purchase expensive stocks more easily.

Robinhood is one brokerage which allows you to buy fractional shares.

For example, Amazon’s share price is $3,400. Most individual investors don’t have enough money to purchase a single share. Purchasing one share might mean your portfolio lacks diversification, because your money is in one share.

Maybe, I want to own a share of Amazon, but only have $100 to spare. I can purchase 3% of one share [3% = ($100/$3,400)*100]. Now, I have exposure to Amazon in my portfolio even if I didn’t have enough money.

If I only had $1,000 to invest, my fractional share of $100 now makes up 10% of my portfolio. I can now purchase 9 other shares of $100 or less or more fractional shares.

What percentage of stocks should I own? 

This is one of those “rules” that depend on your age, financial resources, and goals. Generally speaking, you should reduce your risk as you get older. That’s because you’re getting closer to retirement and can’t risk as much loss or erosion.

You need to maintain your investments’ value as much as possible. Ideally, you also want your investments to continue to grow a bit. That being said, there is an allocation formula for the percentage of stocks you should own.

That formula is the equivalent of your age subtracted from 100. So, if you’re 40 years old, you should have 60% stocks in your portfolio. Yet, some experts are calling for a revision to the standard rule-based on life expectancy.

They say it might be better to subtract your age from 110 or even 120. Women, for instance, tend to live longer than men. So, a 40-year-old woman might need 70% or 80% stocks instead.

Risk tolerance

One of the problems with the above formula is it doesn’t allow for different goals and risk tolerance. Some 40-year-old women may not want 70% in stocks because of chronic health conditions. Instead, they need more conservative investments to draw income.

While you can start with the simple allocation formula as a guideline, be sure to adjust it for your situation.

Asset allocation by age and net worth

Assuming you’re using the simple allocation formula, here’s a breakdown of typical age milestones. This chart uses 100 as the base number.

Age Stock Percentage
20 80%
30 70%
40 60%
50 50%
60 40%
70 30%

The higher your net worth, the more you have to lose. However, a person’s allocation strategy depends on risk tolerance and financial goals. It isn’t uncommon to see people with a high net worth take an aggressive investment strategy.

On the other hand, you’ll also see the opposite. Keep in mind that net worth also tends to increase with age. The exceptions are those born into wealth and inheritances or those who earn higher than average incomes.

You might have young NFL football players with 80% or more of their investments in high-risk stocks to maximize returns. But you could also see a 25-year-old admin assistant employ a similar strategy because retirement is decades away.

How long does it take to make money from stocks? 

Like most other answers, this one also depends on shifting variables. Some people can make a profit in a single day. Others take decades to see a sizeable return.

Typical variables include increases or changes in the stock’s share price and average returns over different time frames. When researching a stock, you should see the return rates for those periods. A prospectus usually has return rates for one year, five years, and ten years.

Some will list a lifetime return, which is what the fund or stock has earned since inception. While these rates are a good indication of what you can expect, they’re not absolute. A company that did well in the past might go into bankruptcy in the future.

Investors who match their financial goals with expected return rates seem to do best. Remember that most day traders lose money, so this is a very risky move. You’re better off diversifying as much as possible and holding your investments.

Can trading make you rich?

Some traders have made a lot of money by actively trading stocks. However, the majority of traders lose money and should invest by “buying and holding” for the long term. Therefore, you should focus your efforts in growing your income and investing more.

I can understand the appeal to being an active trader. Typically, there is a large learning curve before someone makes money as a trader. Therefore, start small and learn the ropes before investing large amounts of money.

Learning to trade stocks with $100 isn’t nearly as risky as using a large sum. Should you feel more comfortable, you can add more money later. I guarantee, 99% of new traders are going to lose money before they learn to make money trading stocks.

Click to Tweet! Please Share!Click To Tweet

How many stocks can you buy in a day?

There isn’t a specified limit for those who aren’t day traders. However, you will want to check with any brokerage limits. Some may limit the number of transactions you can do in a day or have time-sensitive cutoffs.

Say you want to buy 100 shares in one stock and 200 shares in another. But your brokerage only completes sales up to 5 pm Eastern Monday through Friday. You live in the Pacific time zone, so you’re three hours behind.

You don’t place the order until 5:05 pm Eastern. The transactions will count toward the next day’s activity. And your brokerage won’t accept more than three transactions a day.

You’re well within the daily limits, but you can only complete one additional purchase before 5 pm Eastern.  

Day trading limits

Day traders, on the other hand, are subject to some limits. A day trader buys and sells stock on the same day. They also make four or more trades within a single day and typically work with a portfolio of $25K plus.

However, your transactions have to be at least 6% of your portfolio’s value. Otherwise, you’re restricted to three day trades within a five-day rolling time frame.

Summary: How many stocks should a beginner buy?

As you can see, building a diverse portfolio can start with 10-15 stocks. Beginners should focus on finding quality stocks and keeping their portfolio diverse. 

Too few stocks can give one stock more influence over your portfolio’s performance. Too many stocks can be hard for a new investor to manage.

Beginners should look for stocks with a history of price and earnings growth. Ideally, you know the companies you’re investing in and avoid buying based on stock price. Quality stocks are often higher priced stocks, while cheap is cheap for a reason.

Don’t worry about the number of shares you purchase. Instead, focus on maintaining a diverse portfolio. Start by getting a share of your initial 10-15 stocks. Add more stocks or shares as time goes on while keeping your portfolio diverse.

Some brokerages will allow you to buy fractional shares. A fractional share lets you buy a portion of one share. You can then buy more expensive stocks at a fraction of the price. Fractional shares can help you maintain a diverse portfolio when you’re just starting.

Generally, trading should be avoided. Buying and holding for the long term is a better strategy. However, you can start trading if you want, but start with a small amount. You can always add more money later when you figure it out.


Based on this article, we think you’ll enjoy the following:

John is the founder of TightFist Finance and an expert in the field of personal finance. John has studied personal finance for over 10 years and has used his knowledge to pay down debt, grow his investment portfolio, and launch a financial based business. He is committed to sharing content related to personal finance based on his experience in his career, investing, and path towards reaching financial independence.