How Many Shares Should I Buy of a Stock?

There are a few factors to consider when deciding how many shares of a particular stock to buy. In addition to your available capital, you should consider diversification and purchasing fractional shares of stock.

With that in mind, here's a quick guide that can help you determine the ideal number of shares to buy.

An infographic that poses several questions to ask yourself to help determine how many shares of a stock you should buy. — Image source: The Motley Fool.

How many shares can you buy based on price?

First, let's look at how many shares you can buy. Assuming your broker doesn't charge commissions for stock trades (online brokers typically don't), calculating the number of shares you can buy with a certain amount of money is easy.

A share of stock represents ownership in a company, entitling holders to a portion of its assets, profits, and voting rights.

To help you determine how many shares of a particular stock you can buy, here's a three-step process to use:

1. Find the current share price of the stock you want

You can obtain the share price through your broker or from a financial website. Make sure you're looking at a real-time quote, not a delayed one. Some public news sites offer quotes delayed by 20 minutes or so.

2. Divide the amount of money you have available to invest in the stock by its current share price.

For example, if you have $1,000 to invest and a stock is trading for $40, this equals 25 shares. Of course, in the real world, you will probably not get a whole number, and that's why the next step is needed.

3. Determine the number of shares you can buy

If your broker allows you to buy fractional shares, or you got a whole number in the second step, the result is the number of shares you can buy. If you can't buy fractional shares, round down to the nearest whole number.

Example

As an example, let's say you want to buy hypothetical Company ABC stock, and you have $2,000 to invest. Let's say Company ABC is trading for $268.30 per share. Dividing those two numbers would give you about 7.45 shares. If your broker supports fractional shares, this means you can afford to buy 7.45 shares of Company ABC. If your broker doesn't support fractional shares, you would be able to buy 7 shares.

What about diversification?

Here's an important point, especially for newer investors. Just because you can buy a certain number of shares of a particular stock doesn't mean you should. For example, if you put $1,000 into a newly opened brokerage account and a stock you want to own trades for $50, you have the ability to buy as many as 20 shares.

However, don't forget about portfolio diversification. Instead of a large position in one stock, a better investment strategy is spreading your initial brokerage deposit across a few different companies.

Most experts tell beginners that if you're going to invest in individual stocks, you should ultimately try to have at least 10 to 15 different stocks in your portfolio to properly diversify your holdings. Since most brokers no longer charge commissions for online stock trades and many allow you to buy fractional shares, it's more practical than ever to spread a relatively small amount of capital across many different stock positions.

Buy-and-Hold Strategy

A strategy that entails buying stocks or other securities and not selling them for long periods of time, sometimes decades.

However, if your broker is one of the few that still charges commissions, it might not be practical to make small investments. If you are still paying commissions, consider making the switch to a top-rated online broker that doesn't charge commissions on online stock trades.

Let's be perfectly clear: With so many great commission-free options, there is no reason to pay commissions on online stock trades.

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How many shares of stock should you buy?

The bottom line is that there is no universal answer to this question -- it depends on your personal situation. Just remember to consider these important factors:

How much money you have to invest.
Whether you need to diversify your investment portfolio or want to put all your available capital into the stock.
Whether your broker allows fractional share investing.

About the Author

Matt Frankel, CFP, is a contributing Motley Fool stock market analyst and personal finance expert covering financial stocks, REITs, SPACs, and personal finance. Prior to The Motley Fool, Matt taught high school and college mathematics. He holds a bachelor’s degree in physics from the University of South Carolina, a master’s degree in mathematics from Nova Southeastern University, and a graduate certificate in financial planning from Florida State University. He won a SABEW award for coverage of the 2017 Tax Cuts and Jobs Act. He is also regularly interviewed by Cheddar, The National Desk, and other TV networks and publications for his financial, stock market, and investing expertise.

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