Diversification: how many stocks is actually enough?
The old textbook answer was 10. Newer research says that's not nearly enough. Here's how the number has changed — and why an index fund sidesteps the question entirely.
The number has moved over time
the research, honestly| Study | Stocks recommended |
|---|---|
| Evans & Archer, 1968 (the classic textbook citation) | 8–10 |
| Statman, 1987 | 30–40 |
| Later terminal-wealth studies (2000s onward) | 40–50+ |
| Some recent estimates for full risk reduction | 50–100 |
The original "10 stocks is enough" rule of thumb is one of the most-repeated numbers in personal finance — and one of the most outdated. Later research using different risk measures and longer time periods consistently revised the number upward.
Why the number kept climbing
what changedDifferent risk measures
Early studies measured only the standard deviation of returns. Later research also looked at "terminal wealth" — what you actually end up with after 10 or 20 years — and found more stocks were needed to narrow that range.
Stocks got more correlated
As markets became more globally connected, individual stocks started moving together more than they used to, especially during downturns — which reduces the diversification benefit of adding "just one more" stock.
The simplest fix
skip the debate entirelyA total-market index fund
A single low-cost fund tracking a broad index typically holds hundreds to thousands of companies. It sidesteps the "how many is enough" question by holding effectively all of them, weighted by size.
If you do pick individual stocks
Spread across different industries, not just different companies — 20 tech stocks diversify much less than 20 stocks across 10 different sectors, since a sector-wide downturn hits correlated stocks together.
The honest caveat
read this part tooThere's no single "correct" number — it depends on the risk measure used, the time period studied, and how much risk reduction you're trying to achieve. What's consistent across the research: the classic "10 stocks" rule undersells what real diversification requires, and the marginal benefit of each additional stock shrinks well before you reach hundreds.
This page is educational, not personalized financial advice. See our full before investing disclosures before acting on anything here.
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