Portfolio construction
How many shares do I need for diversification?
A practical look at how many holdings give reasonable diversification for small investors.
The short answer
There is no fixed number. For individual shares, you may need dozens of holdings to reduce the risk that one company damages your portfolio. If your goal is diversification rather than choosing winners, a broad Shariah-screened ETF is often the more practical starting point: one purchase can spread your money across many companies.
Individual shares versus funds
Holding many individual shares requires capital and monitoring. A single broadly diversified Shariah-screened ETF can give exposure to many companies in one purchase, which is often simpler and more practical for a small portfolio than trying to buy enough separate shares.
Shariah-compliance considerations
If you want Shariah-compliant diversification, start by comparing a broad Shariah-screened ETF with a basket of individual shares. Check the ETF's index, holdings, screening methodology, cash policy, derivatives and securities-lending policy before you invest.
What this means in practice
- 1If you own only one or two shares, shortlist a broad Shariah-screened ETF before buying another single stock.
- 2Read the ETF factsheet: check the index, number of holdings, top companies, country and sector exposure, methodology and total cost.
- 3Compare that one-ETF route with the dealing fees, time and monitoring needed to build a basket of individual shares.
- 4If buying individual shares instead, aim for exposure across sectors and geographies and review them regularly.