I heard a story this week about a man rolling over his $200,000 company 401k into an IRA and he wanted to put it all into a single, high growth stock.
I think most would agree that putting a large chunk of your retirement money into a single stock is risky.
But there are also other ways an investor could become heavily weighted in one company.
Many employees of companies that have Employee Stock Purchase Plans also can be overweight in one stock because they get a discount for buying the company stock so they keep buying every month. Eventually, that position dwarfs every thing else in their portfolio.
But if one stock is too few, how many is too many?
Some investors own 50 or 60 stocks which risks turning their portfolio into a pseudo-mutual fund. Even if you manage to land a few big winners they are such a small percentage of your overall portfolio that they hardly cause much of a boost in your returns.
If owning one stock is too risky, how many stocks SHOULD you own in your portfolio in order to have diversity and spread the risk?
