How Much Should You Diversify When It Comes To Investing?

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an Fund (run by Peter Lynch) — Achieved an annual return of 29% between 1977–1990. Owned <b>more than 1400 stocks</b> in his fund.</li><li>WJS Partnership (run by Walter Schloss) — Achieved an annual return of 15.3% between 1956–2000. Owned <b>approximately 100 stocks</b> in his fund.</li><li>RV Capital GmbH (run by Robert Vinall) — Achieved an annual return of 19% between 2006–2022. Owned <b>no more than 10 stocks</b> in his fund.</li></ol><p id="4cd6">I have just shown you 3 different funds with different levels of concentration. Despite the varying level of concentration, all 3 funds managed to beat the S&P 500 index fund in the long term.</p><p id="ba0e"><b>What stock you invest in, is far more important than how many stocks you invest in.</b></p><p id="2226">Personally, I prefer a concentrated portfolio because then I do not have to keep track of so many different stocks.</p><p id="92b1">But ultimately, it depends on the individual’s temperament; concentrated portfolios tend to experience more volatility.</p><p id="7efb">Do what suits you best. Invest safe!</p><p id="1553"><i>P.S.: If you like what you are reading, or you are intereste

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It depends.

As you probably have already read the subtitle, there is no correct answer to this question. How much one diversifies boils down to one’s temperament.

At the end of the day, all that we want from our investment is results. You can be invested in just 5 stocks, or 20, or even 50, it’s all up to you. So long you beat the market in the long run, nobody is going to judge you from owning x number of stocks.

If you think that your return on investment is determined by your level of diversification, think again…

Examples of funds with varying levels of diversification, all of which beat the market in the long-term

Magellan Fund (run by Peter Lynch) — Achieved an annual return of 29% between 1977–1990. Owned more than 1400 stocks in his fund.

WJS Partnership (run by Walter Schloss) — Achieved an annual return of 15.3% between 1956–2000. Owned approximately 100 stocks in his fund.

RV Capital GmbH (run by Robert Vinall) — Achieved an annual return of 19% between 2006–2022. Owned no more than 10 stocks in his fund.

I have just shown you 3 different funds with different levels of concentration. Despite the varying level of concentration, all 3 funds managed to beat the S&P 500 index fund in the long term.

What stock you invest in, is far more important than how many stocks you invest in.

Personally, I prefer a concentrated portfolio because then I do not have to keep track of so many different stocks.

But ultimately, it depends on the individual’s temperament; concentrated portfolios tend to experience more volatility.

Do what suits you best. Invest safe!

P.S.: If you like what you are reading, or you are interested in writing an article on Medium yourself, consider supporting me and thousands of other writers by signing up for a membership. It only costs $5 per month, and you have the chance to make money with your writing as well. By signing up with this link, you’ll support me directly with a portion of your fee, it won’t cost you more. If you do so, thank you a million times!