At school you would have learnt about collective nouns, and wondered: When am I ever going to need to use the term ‘A Gaggle of Geese’, ‘A Troop of Dancers’ or ‘A Round of Drinks’? Wait... Scratch that last one. Well, here’s one that you’ll most certainly use in your investment journey: ‘A Portfolio of Shares’. A portfolio is the collective term for the combination of different shares (and potentially some other stuff like property, Exchange Traded Funds or cash) which represent all of the things you are invested in.
How many shares should I have in my portfolio?
Once you’ve invested in your first company it’s time to start thinking about what other shares you might want to have as part of your share investment portfolio. Having too few shares makes it hard to manage your overall portfolio risk, while having too many shares also has its downside.
Each time you invest in a share you pay brokerage commission on the transaction, so having too many shares means you’ll be spending more (overall) in the purchase of those shares. It also makes it harder to keep track of the progress of your portfolio, having to consider each individual company’s profit or loss and how it is contributing to the overall performance of your portfolio. On the other hand having too few stocks could mean that if one company is experiencing major losses, it drags the overall performance of your portfolio down significantly. You have to decide where the sweet spot is for you, but studies suggest a good starting point would be to invest in 10 shares - you always have the opportunity to add more as you grow as an investor and can identify investment opportunities as they arise.
How often should I change the shares in my portfolio?
Though this is really a matter of opinion, most experienced investors like Warren Buffett would say: Never. This is reffered to as a ‘Buy and Hold’ strategy with the idea being that there is no ideal time to buy or sell shares in the market, but rather to hold them for as long as possible to ride out any temporary market up’s and down’s and to reap the full benefit of any compounding returns. Frequent buying and selling of the holdings within your portfolio can be really detrimental to the performance of your portfolio as it adds additional cost and can mean losing out on potential growth.
But sometimes there are good reasons to sell a particular share, which all depend on where you are at in your investment journey and what it is you are hoping to achieve. One of these reasons could be that staying invested in a particular share is turning you into a complete wreck. If there’s a share in your portfolio that just doesn’t match what you are comfortable in terms of risk and the stress of holding it is affecting your quality of life, it might be time to sell.