How Many Companies Do I Want in a Taxable Portfolio?

I began writing a post about my watchlist, and immediately realized I should talk about the number of stocks in my portfolio (and how many I would like to have). I will save the watchlist post for later, because this deserves its own post!

At the moment, I have 45 companies plus a broad US stock market ETF (VTI) in my taxable portfolio. I recently added a new holding and would like to add a few more. I am fairly spread out over these companies. Why do I like being so spread out?

1. Mitigate risk. I’m not Warren Buffet and I don’t go all-in on a few companies based on stellar research and knowledge. I am no smarter than the average investor, and investing in this many companies reduces the negative effects a bad company will have on my portfolio. At the same time, I will miss the opportunity to go all-in on some great companies, but I’ll accept that.

2. Mitigate risk, part II. Why go all-in on one company in a sector instead of a few? Why go all-in on 3M when I could spread the same investment over 3M (MMM), Nordson (NDSN), and Honeywell (HON)? I admit I don’t have the ability to pick which one of these will outperform the others, so why not spread the investment over multiple? Same for Coke (KO) versus having Coke (KO) and Pepsi (PEP). Or why go all in on Lockheed Martin (LMT) when I could pick up some LMT plus other defense contractors like Northrop Grumman (NOC), Raytheon (RTN), and Hungtington Ingalls (HII)?

3. No fees. I can make as many transactions on Robinhood as I like with no concern for brokerage fees.

4. More frequent dividend payments. If 45 companies pay me 4 dividends per year (for the most part), I collect about 180 dividend payments per year. This many dividend payments keeps it fun for me. For now, I enjoy getting 180 payments of $2-$8. I’ll look forward to when they get up to the $20+ range!

5. Automated taxes. Gone are the days where more transactions meant more time doing taxes. I can automatically import my transactions into most tax software.

6. Low-maintenance selections. I always ask myself whether a company will be around when I retire (or die). McDonalds? Probably. Disney? Hard to imagine them closing up. Boeing? Microsoft? Visa? 3M? Johnson & Johnson? Most of these companies have been around since long before I was born, and will probably keep going long after I’m gone. I buy shares in these companies and mostly forget about them until I decide to add more shares. I never plan to sell. I expect them to have ups and downs. Some will fail, I’m sure. For the most part, I will trust that these companies have brilliant leadership and vision for the future. I don’t need to do a lot of research after my initial purchase, so more companies does not equal more portfolio maintenance for me.

What’s your preferred number of holdings in your portfolio? 20? 100? Mine sits at 45, but I have about 15-20 more companies on my watchlist.

4 thoughts on “How Many Companies Do I Want in a Taxable Portfolio?

  1. I don’t have a set number of stocks but I do share your idea of having multiple stocks per sector. So that means I’m probably going to be opening up a few more positions in the coming years 🙂

    1. Considering I get free trades, I sleep better at night knowing I have less exposure to single companies this way!

  2. Hi Dozer. I currently have 40 companies in my portfolio, but I could see getting up to about 50 as the portfolio grows. That would be an average weight of 2% per stock, and I might imagine the individual weights might range between 1% to 4%.
    I wouldn’t want a holding to be much less than 1%, as if it outperforms, then it probably doesn’t make a meaningful contribution to the overall portfolio returns. A max weight of 4% should allow for a stock to run without having to trim the position. It also shouldn’t get me in too much trouble if that company runs into difficulties.
    At this stage of my investing life, since I strive to outperform the S&P 500, having more companies will most likely lead to matching the index’s performance, as opposed to possibly exceeding it. It’s something to balance, for sure.
    Good question you posed… thanks for sharing you thoughts on this.

  3. I also don’t have a set number. I buy decent values when I see them. If they are a stock I already own or a new ones… doesn’t matter. However, I don’t track every dividend stock traded, so I guess there is that limit. Anyway, 45 stocks sounds like a good number, but so does 100 😉

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