#MARKETS & INVESTING
We keep hearing that about ten stocks is enough to diversify a portfolio. That rule is over fifty years old, and more recent research considers it badly outdated.
Published on August 21, 2026
In 1968, Evans & Archer published the first empirical study on the question in the Journal of Finance: most of the benefit of diversification was achieved with 8 to 10 stocks, beyond which each additional stock reduced risk by less and less. In 1987, economist Meir Statman revisited the question from an economic angle, comparing the benefit of diversification to its real cost rather than variance alone, and raised the threshold to 30 stocks for a borrowing investor and 40 for a lending investor (Journal of Financial and Quantitative Analysis). In 2007, Domian, Louton & Racine (Financial Review) showed that, over long holding periods and with the goal of not significantly underperforming an index, even 100 randomly chosen stocks aren't enough to provide high confidence.
If the threshold judged sufficient has been multiplied by ten in fifty years, does a ten-stock portfolio really protect against a single stock blowing up?
Not according to the most recent research: real protection depends on which risk criterion is used, and studies that go beyond variance alone conclude that far more holdings are needed than commonly assumed.
In other words: the number of stocks judged necessary to diversify has been multiplied by ten across fifty years of academic research.
Three caveats, because they matter
- Each study measures a different kind of risk: simple variance in 1968, a benefit-to-cost ratio in 1987, long-run underperformance risk in 2007, so the figures aren't directly comparable to one another.
- The share of risk specific to each individual stock, the part that doesn't diversify away with the broader market, has tended to rise in the United States since the 1960s, which mechanically pushes the required threshold higher across studies.
- All three studies look at individual stocks picked at random, with no selection strategy; a broad index fund, by contrast, diversifies in a single holding.
Why it still matters: a ten-stock portfolio, often described as 'diversified,' can remain far more exposed to single-stock risk than the intuition inherited from the 1960s suggests.
For you
- How many different holdings does your portfolio have today?
- Did you choose that number based on a specific risk target, or out of habit?
Source: Evans & Archer, 'Diversification and the Reduction of Dispersion: An Empirical Analysis,' Journal of Finance, 1968; Statman, 'How Many Stocks Make a Diversified Portfolio?,' Journal of Financial and Quantitative Analysis, 1987; Domian, Louton & Racine, 'Diversification in Portfolios of Individual Stocks: 100 Stocks Are Not Enough,' Financial Review, 2007.
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