Should I sell my Commonwealth Bank shares? The issue of buying and selling of shares is a tricky one. People do not just sell or buy shares because they feel like. There must be good investment reasons behind such a decision. In selling or buying shares, you must consider several aspects, including how it will affect your stock portfolio. Wait. How many shares do you have in your portfolio?
For some people, especially those new to the ASX world and those who have inherited shares, being an investor is all about owning one or two company shares. That is where the heavy financial rains start beating them. It is true that companies like the Commercial Bank of Australia that have been in ASX 200 for decades cannot disappear overnight. However, that does not push away the fact that holding few shares is an extremely risky game. In the world of investment, those who make money are the pessimists. They figure the worst-case scenarios and laugh all the way to the bank when things turn out ‘average’.
How many ASX shares should I own?
The concept of diversification is an important one, especially for beginners. There is no better place where the old proverb of ‘never putting all the eggs in one basket’ applies than in stock market. You need to remain covered however volatile the market threatens to be. If one company suffers mismanagement issues, you will still have shares of other companies to keep you warm in winter.
Past studies have shown that beyond 30 diverse investments, the benefits if diversification gradually weather out. That is why most professionals preach ’30’ as the magical number. However, research also shown that 70% of benefits resulting from such diversification can be captured in just 10 different shares. Does that sound impressive or confusing? You know better. Some investors therefore recommend 10-20 diversified ASX shares for those who are just getting into the game.
Diversify different industries
The aspect of diversification can be confusing at times. Investing in ten commercial bank shares does not make your portfolio diversified. It is like buying the same brand of car but different models. Certain things will never change. To absorb the shock associated with stocks, it is important that you diversify across various industries, sectors and geographies. For instance, putting more than 30% of your investment in ASX bank stocks alone might be considered risky. Remember, if there are significant changes in interest rates or bank regulations, it will affect all the banks regardless of their sizes.
Try ASX 200
Choosing 20 or 30 best stocks might be a difficult task, especially if you have $5000 or less for investment. ASX 200 is a bunch of 200 best performing shares in the Aussie Stock Market. Owning a single share of this stock is like buying a fraction of each of the 200 companies. It is a good idea for a beginner because the diversification is achieved automatically. Is it something you should consider? That remains your decision to make.