How many stocks should I hold in my portfolio? Diversification vs. Diworsification Explained

Sanzhi Kobzhan
Nov 28, 2025
7 min read

Updated: Dec 13, 2025

How Many Stocks Should You Hold? Diversification vs. Diworsification Explained

If you’ve ever asked yourself, “How many stocks should I hold in my portfolio?”, you’re not alone. New and experienced investors struggle with the same trade-off:

Too few stocks and a single bad earnings report can hurt your net worth.
Too many stocks and you end up overloaded, paying higher fees, and often just replicating an index—poorly.

The goal isn’t “the most stocks possible.” The goal is enough stocks, chosen intelligently, to balance risk and return.

In this article, we’ll walk through:

What diversification really does for you
Why holding at least 5 stocks is a sensible minimum starting point
How research and practice converge around a 10–30 stock range for individual stock pickers
What diworsification is—and how to avoid it
A practical framework to choose the right number of stocks for your situation

At the end, I’ll also show you how you can move beyond the minimum and build an efficient portfolio using the Markowitz model with my stock screener and portfolio builder.

What Diversification Really Does (and Doesn’t) Do

Modern Portfolio Theory (MPT), introduced by Harry Markowitz, formalized something intuitive: combining assets that don’t move in perfect lockstep reduces overall portfolio risk. The key is not the number of positions alone, but how their returns co-move.

In practical terms, diversification helps you:

Reduce company-specific risk (a CEO scandal, product failure, fraud)
Smooth your portfolio’s return path over time
Improve your risk-adjusted returns—what you earn for each unit of risk taken

But diversification has limits:

It cannot eliminate market risk (recessions, pandemics, global shocks).
After a certain point, adding more names produces diminishing marginal benefits.
If the new positions are highly correlated with what you already own, they may not reduce risk at all.

That’s where the question of “how many” becomes critical—and where the concept of diworsification enters.

What Research Says About How Many Stocks You Need

Academic research has studied how portfolio volatility falls as you add more randomly selected stocks:

Early studies found that 8–16 stocks can capture a large share of diversification benefits.
Later work (for example, Statman’s classic study) suggested that 30–40 stocks may be necessary for a fully diversified portfolio of randomly chosen stocks.
More recent analysis by practitioners shows that:
- For large-cap portfolios, most of the risk reduction is captured with around 15 stocks.
- For small-cap or style-focused portfolios, peak diversification arrives closer to 26 stocks.

Industry guidance has converged on a simple, practical takeaway:

Most of the diversification benefit for a stock picker is captured in the 20–30 stock range; additional positions add complexity more than they reduce risk.

The key nuance: these numbers assume you’re building a stock-only portfolio. Once you add bonds, ETFs, and other asset classes, the diversification story becomes more complex—but the same principle holds: beyond a certain point, more is not better.

So… How Many Stocks Should I Hold in My Portfolio?

Let’s translate the research into practical ranges.

Absolute Minimum: 5 Stocks

As a rule of thumb, you should avoid holding fewer than 5 individual stocks in an equity portfolio.

That’s why, in my Stock Screener and Portfolio Builder app, the Markowitz portfolio builder only activates once you’ve selected at least 5 stocks—that’s the minimum for an optimization to spread risk in a meaningful way.

With fewer than 5:

Your portfolio is extremely sensitive to a single company
A bad outcome can dominate performance
You’re essentially speculating, not building a robust investment strategy

So, 5 stocks is the absolute floor—suitable only as a starting point or for very experienced, high-conviction investors.

Practical Ranges for Most Investors

From there, consider these ranges:

	5–10 Stocks: Very Concentrated	10–20 Stocks: Concentrated, Yet Diversified	20–30 Stocks: The “Sweet Spot” for Many Stock Pickers	30+ Stocks: Approaching Index Territory
Who it fits:	Advanced, high-conviction investors willing to accept higher volatility.	Investors who enjoy stock picking and have reasonable time for research.	Long-term investors wanting a balance between diversification and manageability.	Investors with large capital and systems in place, or investors who have drifted into “owning everything” over time
Pros:	Easier to follow each company deeply. If you’re right, outperformance can be significant.	Captures much of diversification benefits while keeping the portfolio focused.	Research and industry practice both suggest this is where most unsystematic risk is diversified away	Risk profile increasingly resembles broad indices.
Cons:	High idiosyncratic risk; one or two mistakes can heavily impact returns.	Still more volatile than the broad market; requires steady monitoring.	Requires more organizational discipline (position sizing, rebalancing).	You may be shadowing an index—but with higher transaction costs and complexity. Monitoring 40–60 names meaningfully is difficult for most individuals.

If you’re building your own stock portfolio and want to apply Markowitz-style optimization, a target of 10–30 well-selected stocks is a realistic, evidence-based range.

Diversification vs. Diworsification

Diworsification is what happens when diversification goes too far and starts to hurt your risk-return profile instead of improving it.

The term was popularized by Peter Lynch and is now widely used to describe situations where investors add “diversifiers” that actually increase correlation, cost, or complexity without boosting returns.

Signs You’re Diworsified

You may be diworsifying if:

You own many stocks that all behave the same way.
- Multiple names in the same sector, region, and style
- High correlation during stress periods
You can’t explain why each position is in your portfolio.
- Positions were added because they “seemed interesting” or were a tip
- No clear role in your strategy (growth, income, hedge, etc.)
You have lots of tiny positions (e.g., <1% each).
- These holdings don’t move the needle on performance
- They add operational and mental overhead without meaningful risk reduction
Your portfolio behaves like a broad index—but with higher friction.
- Performance tracks a benchmark, but you pay more in commissions, spreads, and time
- In that case, a low-cost ETF is usually more efficient.
You’re overwhelmed by monitoring.
- Earnings, filings, news, and macro impact become unmanageable
- The quality of your analysis deteriorates as quantity grows

The takeaway: diversification should be intentional, not automatic. Every position must earn its place.

A Simple Framework to Decide Your Number

Use this three-step framework to decide how many stocks you should hold.

Step 1: Be Honest About Your Time and Attention

Ask yourself:

How many hours per month can I realistically dedicate to monitoring my portfolio?
Do I enjoy reading reports, transcripts, and macro news—or do I find it draining?

Rough guidance:

Low time (1–3 hours/month):
- Consider a core of ETFs/index funds and only a small number of individual stocks (5–10).
Moderate time (4–8 hours/month):
- You can likely manage 10–20 individual names.
High time (10+ hours/month, plus experience):
- You may comfortably handle 20–30 stocks with proper systems.

Step 2: Match the Number of Stocks to Your Risk Appetite

There is a direct link between concentration and potential outcomes:

If you want a realistic shot at significant outperformance and can tolerate volatility, you might lean toward the 10–20 stock end.
If your priority is capital preservation and sleep-at-night comfort, you likely want 20–30 stocks (or to use diversified funds instead).

Your risk appetite also feeds into your target return, which is exactly what the Markowitz model optimizes around.

Step 3: Decide on Your Core Vehicle: ETFs vs. Individual Stocks

Your “how many stocks” decision depends on whether:

You’re building a pure stock-picking portfolio, or
You’re combining ETFs plus a satellite of individual names.

A few examples:

Index-dominated portfolio
- 80–90% in diversified ETFs
- 5–10 individual stocks for ideas you truly believe in
Stock-centric portfolio
- 60–100% in individual stocks
- 10–30 positions spread across sectors, regions, and styles

In many cases, it’s smarter to outsource broad diversification to ETFs and focus your stock-picking energy where you have conviction.

From the Minimum of 5 Stocks to an Efficient Portfolio

We’ve established that 5 stocks is an absolute minimum. It’s the threshold where a risk-based optimizer can start to produce a meaningful allocation.

That’s why, in my article “Find Great Stocks and Build an Efficient Portfolio with My Stock Screener and Portfolio Builder”, I walk through how to:

Screen for stocks that fit your risk appetite
Select a set of 5 or more promising candidates from the filtered list
Use the Markowitz model to construct an efficient portfolio that:
- Minimizes risk for a given target return

Efficient investment portfolio built using the Markowitz model.

the Markowitz model based investment portfolio — the Markowitz model based portfolio

If you’re ready to move beyond “how many stocks should I hold?” and start answering “which specific stocks and in what weights?”, that guide is the natural next step.

Common Mistakes to Avoid

Regardless of how many stocks you hold, watch out for these pitfalls:

Counting tickers instead of correlations
- Holding “30 tech growth stocks” is not well diversified.
- Seek differences in industry, economic drivers, and factor exposure.
Falling into the “one more stock” trap
- Adding a new name should improve your portfolio’s risk-return profile.
- If it doesn’t, you’re likely diworsifying.
Ignoring position sizing
- Holding 25 positions where one is 25% and many are <1% is not balanced.
- Size positions so that each has a meaningful but controlled impact.
Overtrading
- More names often tempt more trading, raising costs and taxes.
- Rebalance with intention, not emotion.

No clear process

Diversification works best when paired with a repeatable selection and sizing process—exactly what an optimizer based on the Markowitz model is designed to support.