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Summary
- To invest in one stock or to diversify the portfolio is a tough call to make.
- Diversification or not depends on a multiple factor.
- Investor can be sentimentally attached to one stock.
"Investment in stock is subject to market risks and the investor should exercise all precautionary measures while investing," goes the thumb rule or you can say the universal principle behind stock market investment.
While investing, you are exposing yourself to vulnerabilities that are beyond your control and the nature of the vulnerabilities maybe domestic or foreign.
Hence, it is only fitting that you diversify your investment portfolio with more than one stock.
However, if the stock is inherently diversified such as an index ETF, then further diversification becomes unnecessary.
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Putting all your money into one or two baskets makes you dependent on the success or failure of those two companies.
For example, shareholders of Enron Corp, heavily relied on the stock and what they eventually got in return was absolutely nothing, and we all know what happened after that.
There are certain factors to consider while deciding how many units of a particular stock you should buy.
Stocks You Can Buy Based On Price
Let’s assume that you have $3000 to invest in the stock of Apple (NASDAQ:AAPL). Apple's current price is $122.55 at the time of writing this. By adopting the division route, you arrive at 24.47 shares.
Since fractional trading is not encouraged by most brokers, we round off to the nearest whole number. This means with $3000 you can buy 24 shares of Apple.
How About Diversifying Your Portfolio?
In case you have $1000 in your brokerage account and the stock you want to buy is trading at $30, you can simply buy 33 shares of the stock; but is it wise to do so?
Since nowadays brokerage firms don't charge commission for online stock trading, there is no better time to diversify your investment portfolio into 10 to 15 different stocks representing different industries.
How Many Shares Of Stock Should You Buy?
Well, there is no universal answer to this! There are many investors who go for investment due to high faith or loyalty towards a particular brand or company. Say, he wants to invest only in Amazon or Apple irrespective of market condition or the number of shares he can hold with the amount willing to invest.
Bottomline:
Investing in few shares of one stock is a decision that is entirely of the investor, which depends upon certain factors:
- The amount of money you want to invest.
- Weather diversification is a must.
- Commission/fees applicable for brokerage
