More recent studies on diversification indicate the need for how many stocks?

More recent studies on diversification indicate the need for how many stocks?

• A. 20-30 stocks
• B. 30-40 stocks
• C. 50-60 stocks
• D. 70-80 stocks

Answer: (C)

The correct answer highlights that a portfolio of 50-60 stocks is generally recommended for optimal diversification. This range stems from research indicating that holding around 30 stocks can mitigate unsystematic risk effectively; however, as the studies progressed, many experts found that increasing the number of stocks further enhances diversification benefits. By having 50-60 stocks, investors can better spread their exposure across different sectors and industries, reducing the impact of volatility from any single stock. This number allows for a balance where investors can capture a substantial portion of the market's overall performance while minimizing the risks associated with individual securities. Moreover, a portfolio within this range tends to also account for the potential correlations between different stocks, providing a more resilient investment strategy. Thus, 50-60 stocks represent a well-supported position for achieving a strong balance between risk and return in a diversified investment portfolio.

The correct answer highlights that a portfolio of 50-60 stocks is generally recommended for optimal diversification. This range stems from research indicating that holding around 30 stocks can mitigate unsystematic risk effectively; however, as the studies progressed, many experts found that increasing the number of stocks further enhances diversification benefits. By having 50-60 stocks, investors can better spread their exposure across different sectors and industries, reducing the impact of volatility from any single stock.

This number allows for a balance where investors can capture a substantial portion of the market's overall performance while minimizing the risks associated with individual securities. Moreover, a portfolio within this range tends to also account for the potential correlations between different stocks, providing a more resilient investment strategy. Thus, 50-60 stocks represent a well-supported position for achieving a strong balance between risk and return in a diversified investment portfolio.