Diversification for PSX investors: how many stocks is enough?

Diversification means not letting any single company, sector or event decide the fate of your savings. It doesn't eliminate risk, since the whole market can fall, but it greatly reduces the damage from one bad outcome.

Spread across sectors, not just stocks

Owning five banks isn't five separate bets: they respond to the same drivers, such as interest rates, regulation and the economy. PSX has several large sectors with different drivers, including commercial banks, oil & gas exploration, fertiliser, cement, power, technology and consumer goods. Mixing sectors with different drivers is where diversification really works.

How many stocks?

There's no magic number, but research on developed markets suggests most of the benefit of diversification comes from the first 15 to 20 stocks, provided they're spread across sectors. For a beginner, 8 to 15 carefully chosen companies across several sectors is a manageable starting point.

• Cap any single stock at a sensible share of your portfolio, for example 10–15%.
• Cap any single sector, for example at 25–30%.
• Hold some cash or fixed-income alongside equities, in line with your risk tolerance.

Rebalance periodically

Winners grow into larger positions over time. Reviewing once or twice a year, trimming what's grown too big and adding to what's underweight, keeps your risk where you intended. Keep taxes and commissions in mind: you don't need to rebalance for small deviations.

PakStockLab's portfolio tracker shows each holding's weight in your portfolio, so concentration risk is visible at a glance.