Course 109: How Many Investments Should You Have?
What You Really Need: Diversification
In this course
1 Introduction
2 How Many Stocks You "Need"
3 How Many Funds You "Need"
4 What You Really Need: Diversification

Simply put, the number of securities you own is less important than how diverse those securities are.

Use's Instant X-Ray tool to analyze your current portfolio, if you have one. Use the same tool as you're assembling a portfolio, too, to see if your choices are as diverse as you think they are.

You're looking for two things: A heavy emphasis on a single security type or industry, such as growth stocks or energy names, and holes in your portfolio. More than one large-growth fund or energy stock, for example, won't add much to your portfolio.

The odds are pretty good that if you own multiple investments doing the same thing or you are considering investments that do the same thing, one is better than the others. Focus your money on the best choices.

Don't forget that you can have overlap even though you own just a small number of securities. Conversely, even if you own a lot of investments you could still have gaps in your portfolio.

The bottom line: Don't obsess over the number of securities that you own. Instead, concentrate on their diversity.

Next: The Quiz >>

Print Lesson |Feedback | Digg! digg it
Learn how to invest like a pro with Morningstar’s Investment Workbooks (John Wiley & Sons, 2004, 2005), available at online bookstores.
Copyright 2015 Morningstar, Inc. All rights reserved. Please read our Privacy Policy.
If you have questions or comments please contact Morningstar.