How much diversification is enough?

When modern portfolio theory first emerged, early research suggested that holding 20 to 30 stocks was enough diversification to achieve total volatility similar to the market. But later studies showed that even if expected volatility is similar, small differences can compound over time, creating significant realized tracking error. More recent research recommends holding at least 250 stocks to stay close to a market index. At Integrity, we view the market as just one premium among many an investor might want to capture. Depending on the strategy, we typically recommend portfolios with hundreds or even thousands of stocks to balance diversification, risk, and return potential.