How to Determine How Much Stock to Buy at a Time

Ok, so you have some money and are ready to start investing! Do you put all of your money in the market at once, drip it in regularly or split it in a few purchases?

New investors should buy at most the amount of shares necessary to maintain a portfolio between 10-30 stocks with no single stock making up more than 3-5% of the total portfolio. If investing in ETFs, or Mutual Funds, investors should feel free to invest as much as they want provided they have a fully funded emergency fund and aren’t using funds needed for regular expenses. 

Before you can know how much stock you should buy, it’s important to know how much stock you can buy and how to ensure you are properly diversified.

How To Calculate How Much Stock Can You Afford?

Calculating how much stock you can afford is as easy as dividing the total amount being invested by the share price of the stock you want to purchase.

Let’s say, you want to buy XYZ stock for a share price of $20. If you had $1000 to invest, you’d be able to afford 50 shares ($1000 divided by a share price of $20). That’s assuming that you aren’t paying any commission fees. Ever since Robinhood and Webull came into the investing forefront with commission free trading, most major brokerages now offer this as well.

If you are brand new to investing, I wouldn’t recommend investing all of your money in one basket (aka stock). You should diversify with at least 10 different stocks (preferably from different industries to help ensure your investment is diversified properly). 

If you had $1000 in a brokerage account and are investing for the first time, I’d recommend breaking it down to $100 invested into 10 stocks rather than $1000 in a single share or a single stock. This will protect you in the off chance that one investment has bad news causing your investment balance to drop drastically.

Is it Better to Invest All at Once or Spread Out Over Time?

Lump sum investing historically outperforms dollar cost averaging, so investors are better off investing as much money as possible within the constraints of their investing plan. 

A lump sum investment would be like investing $1000 all at once whereas dollar cost averaging is the process of taking that $1000 and investing $100 each month for 10 months. 

The principles of dollar cost averaging are sound. By investing in regular intervals, you remove emotion from the buying cycle. Rather than trying to time the market, you are simply investing on autopilot with no regard to the current stock price. Over time, this ensures you are not buying all of the stock at the high price.

Mathematically; however, a lump sum investment has more money at work from the start. Rather than having only $100 in the market the first month, all $1000 is present and has the chance to start returning the market historical average of about 7% per year.

In fact, research Opens in a new tab.backs this up!

Any time I have a lump sum to invest, I like to get it all into the market at once so it can start getting to work and earning me money. Once that money is in the market, if I can make periodic additions to it down the road, that’s even better.

Another common investing practice is to standardize position sizing. An example, is the “Rule of Thirds”. This means rather than trying to pick the perfect day to buy stock, you just invest a third at once, a third a couple weeks later, and the last third about a month later.

This rule of thumb helps you obtain a fair average price rather than trying to time the market. It’s been observed time and time again that we as investors are terrible at always timing the market correctly. In fact most pros are only right about half the time!

How Many Stocks Should You Invest In?

Like I mentioned earlier, I would at least invest in 10-30 stocks. I am currently invested in only 10 individual stocks and the rest in the Vanguard Total Stock Market Index Fund ETF.

Having multiple stocks cushions your account from being to weighted in a single equity. It’s not uncommon for the news to cause a stock to gain 10-20% in a day. On the flip side, it’s also not uncommon for a stock to lose 10-20% in a day as well. 

Stocks are volatile. Having a diverse portfolio helps reduce that volatility which means ideally a steady increase in value for  your account rather than a roller coaster ride.

How Much Diversification Do I Need?

There is no magic formula for diversification. Some successful investors think 10 stocks is diverse enough. Other’s only invest in ETFs and Mutual Funds made up of hundreds or thousands of stocks. 

Diversification doesn’t just mean a number of stocks though. It can also mean diversifying different assets. Having some stocks in different sectors and industries is critical to balancing a stock portfolio. 

You wouldn’t want to only own Tech Startup stocks. They may seem awesome some days but with one bad headline, your entire portfolio could suffer.

If you are buying a lot of stock, try to split it between different sectors such as Tech, Finance, Healthcare, Consumer Goods, and Utilities.

Another way to diversify is through investing in different asset classes. Try investing in some stocks but also maybe look at REITs (Real Estate Investment Trusts) or precious metals such as GLD which a trust that manages physical gold that you still trade on the exchange.

How Much Stock Should You Buy At a Time?

Once you’ve determined an investment strategy, only buy stocks that fit your strategy. If you have a diverse portfolio and see a new stock that interests you, determine a percentage that you’d feel comfortable allotting to that stock prior to buying it to see how much you should by. 

Let’s say you have 10 stocks that make up a $10,000 portfolio. If you want to invest in a new stock, try not to invest more than $1,000. That way you are only allotting 9% to your new venture. I usually try to aim at new acquisitions between 3-5%. 

One of my accounts has $30,000 in it so when I buy a new stock, I usually aim between $1000-$1500 (3.3-5%). If I can add a lump sum that large, I will. If not, I’ll contribute to it until it reaches that as a max value. It’s ok to buy stock that’s less than 3%. 

I just avoid buying stock that would make up more than 5%. That’s how I created my investment strategy which is a little conservative.

Apps that Make it Easy to Buy The Right Amount of Stock

M1 Finance allows you to build a portfolio, known as a pie and split up automated contributions according to your specifications. Best of all, they provide this service completely free!

If you had 3 stocks in your portfolio and contributed $100, it would automatically break it down to $33, $33, and $34 in each of the three stocks (known as slices in M1 Finance). regardless to the stock price. 

This takes all the guesswork out since M1 Finance allows you to purchase fractional shares. Fractional shares allows you to invest in expensive stocks without having to commit to a full share at that share price. So, if a stock is $500 and you invest $250, you’ll have half a share.

Other apps that allow you to buy fractional shares are Public and Robinhood, but M1 Finance is the only one that I know of that automates the diversification and asset allocation portion of investing so you can be a smart investor without doing the math. Sign up today, and M1 Finance will give you $20 once you open and fund your account!

For more information, check out the full review of M1 Finance! I go into the details and show you inside my actual account!

Eric Baglio

Eric Baglio has been investing for over ten years and learned a lot of valuable lessons along the way. He has helped numerous people start investing on their own and founded Let's Start Investing to help anyone willing to learn how to build wealth. His favorite brokerage is Webull and his favorite stock advising service is Motley Fool Stock Advisor.

Recent Articles