A private investor tells me they have pooled savings with friends and family to create a pot of cash worth £10,000 to put into the stock market. I ask the individual if they've chosen any stocks yet. 'Oh yes, plenty. I've put £100 at a time in each company. There's loads more on my shopping list, but I've nearly spent all the money, so I'll have to find some more cash.' On that basis, the investor stands to have tiny amounts of money scattered across a portfolio bulging with 100 stocks. Many people would gasp at that portfolio size.

'Did you not want to be more selective and only have a fraction of those holdings, but put more money in per stock, say £1,000 per company?' I ask. 'Oh no,' the individual replies. 'I don't want to miss out on big opportunities when there's so many good stocks on the market, and I've found somewhere to trade at just 50p a go.'

One of the main risks with putting such small amounts of money into the stock market is the dealing cost. Many platform providers charge £10 per trade, which would equate to 10% of a £100 trade - immediately diluting your wealth. At 50p per trade, the situation changes completely. Costs are certainly manageable at that level, but I'd argue it also encourages the individual to take on extra risk, perhaps subliminally.

If costs (at that level) aren't really a concern, and you're only putting £100 in the market at one time, there's a risk you may back more speculative stories - arguing that it is such a small amount to lose if the investment falls in value. Over time, picking these stocks could become second nature, so you lose all thought to considering risk.

I see a scenario where the investor could quickly fill a third of their portfolio with high-risk, blue-sky stocks without giving enough thought to the dangers of backing companies that aren't generating steady profits, merely focused on the potential prize - and ultimately driven by greed. If none of the high-risk investments hit the jackpot in terms of their business goal, such as turning a great idea into a commercial entity, there would be a big chunk of losses to nurse in the overall portfolio.

You might say that the investor does have some protection as their portfolio is well diversified. After all, if you put £1,000 in a single blue-sky stock and the business didn't hit its targets, then the £10,000 portfolio would immediately suffer. And that would be a fair point to make. What I'm more concerned about is the level of research which the investor in question would make for each £100 investment. I'd wager it wouldn't be anywhere near the level for a £1,000 investment - which could be a costly mistake in the long run.

This leads us to the question: What is the optimum number of stocks for an equity portfolio? Twenty to 30 might give you a good spread of exposure to the main industries and geographical sectors. You'd be able to monitor the performance and newsflow from that amount of companies far easier than 100 stocks. Investment trusts might be a viable alternative, where owning a handful would provide exposure to 50 companies or more as each trust would itself be invested in multiple companies.

The broader fund universe including unit trusts or OEICs (open ended investment companies) can be a great way to obtain broad exposure, although most will charge you a management fee that's built into the product.

A mix of equities, funds and exchange-traded products is perhaps the most appealing, which is why you'll see more commentary on this broader universe in Shares going forward. As for the correct answer to the question regarding the optimal number of stocks: there isn't one. It all depends on your appetite for risk and investment time horizon. But I cannot over-emphasise the importance of properly researching a company whether you are putting £100 or £100,000 into a single stock.