Building an investment portfolio does not have to be complicated, even for people who are new to investing. Building a portfolio comes down to a few basic ideas, rather than trying to pick winning stocks.
An investment portfolio is a collection of investments you hold to help your money grow over time. Good portfolio management often involves spreading investments across different assets to help balance risk and return.
This guide explains what an investment portfolio is, how to build one and how to spread your risk. You can also learn how people choose funds, balance risk against return and review their choices over time.
What is an investment portfolio?
An investment portfolio is the total collection of assets you own to grow your money. These assets might include stocks and shares, bonds, property and cash.
In practice, a portfolio is the overall mix of assets you hold in accounts such as a Stocks & Shares ISA, a pension, or a general investment account.
Portfolio investment means buying assets like stocks or bonds to earn a return. This is different from buying and running a business yourself.
| Asset type | What it means | Example |
| Stocks and shares | You buy a small piece of ownership in a company. | Shares in a public technology business. |
| Bonds | You lend money to a government or company for interest. | UK government bonds (gilts). |
| Property | You invest in physical land or buildings. | A commercial property fund. |
| Cash | You keep money in savings accounts or other cash-based products. | Instant-access savings. |
What are the key principles of portfolio building?
Six core ideas help people build an investment portfolio:
- Diversification: You spread your money across different assets, sectors, and places. This means a single loss might not hurt your whole portfolio.
- Asset allocation: You choose a mix of shares, bonds, property and cash that fits your goals.
- Time horizon: You work out how many years you can leave your money invested.
- Cost management: You keep account fees low, as high costs might reduce your long-term returns.
- Regular reviews: You check your investments occasionally rather than reacting to short-term news.
- Risk tolerance: How comfortable you are with risk and the possibility of your investments rising and falling in value.
These principles apply whether you invest £25 a month or a large lump sum. They work if you pick your own investments or choose a ready-made option.
How to diversify
Diversifying your portfolio means spreading your money across different asset types, industries and regions. This stops all your money from depending on one company or market.
Spreading your money could lower your overall risk because different investments may perform well at different times:
- Asset types: Mixing shares, bonds, property, and cash.
- Industry sectors: Spreading money across healthcare, technology, energy and retail.
- Geographical regions: Investing in the UK, the US, Europe and emerging markets.
If one company loses value, other investments in your portfolio might stay stable or gain value. Many beginners diversify by investing through a pooled fund. Multi-asset funds and tracker funds pool your money with other investors to buy hundreds of assets at once.
Diversification helps manage risk, but can’t remove risk completely. The value of investments can go down as well as up, and you might get back less than you put in.
How do you choose funds or assets?
You can choose funds or assets by looking at options that match your goals, risk tolerance and confidence level. Many beginners start with funds rather than researching individual company shares.
| Asset or fund type | What it is | Risk level | Best suited for |
| Individual shares | A direct unit of ownership in one company. | High | Experienced investors with time to research companies. |
| Bonds | A loan you make to a government or company. | Low to Moderate | Investors looking for regular income and lower risk. |
| Active funds | A manager picks assets to try to beat the market. | Variable | Investors willing to pay higher fees for expert management. |
| Tracker funds | A fund that automatically tracks a market index. | Variable | Beginners who want low-cost, broad market coverage. |
| Multi-asset funds | A single fund containing a mix of shares, bonds and cash. | Low to High | Beginners who want built-in diversification in one purchase. |
Note: These are general examples for illustrative purposes. The level of risk and suitability of any investment will depend on the specific investment and your individual circumstances.
Tracker funds usually charge lower fees than active funds because a manager does not need to pick individual stocks. Accounts like a Stocks & Shares ISA can hold these assets and might protect your gains from tax.
Returns from investments outside an ISA might face dividend tax or capital gains tax.
How do you balance risk and return?
You can balance risk and return by matching investments to your financial goals, timeline and risk tolerance. Higher potential returns usually have a higher risk of losing money in the short term.
Shares might offer higher growth over long periods, but their prices can move up and down quickly. Bonds and cash offer more stability, but they might deliver lower growth over time.
| Investment focus | Typical asset mix | Ideal timeline | Main goal |
| Higher growth (Higher risk) | Mostly shares. | 10 years or more. | Long-term growth. |
| Balanced (Moderate risk) | Mix of shares, bonds, and cash. | 5 to 10 years. | Steady growth with fewer price swings. |
| Cautious (Lower risk) | Mostly bonds and cash. | Under 5 years. | Protecting money with modest growth. |
Note: The asset mixes, risk levels and timeframes shown above are examples for illustrative purposes only. Actual investment portfolios can vary significantly, and the most suitable approach will depend on individual circumstances.
Three main factors influence your risk balance:
- Your timeline: Short-term goals (under 5 years) might need lower risk to protect cash values. Long-term goals (10+ years) could handle higher risk for potential growth.
- Your risk tolerance: How comfortable you are if your portfolio drops in value for a short time.
- Your goal: Whether you want to grow your money or protect existing capital for a future purchase.
There is no single correct mix for everyone. Your ideal balance is personal and you can adjust it if life changes.
How do you review and rebalance your portfolio?
You can review your portfolio by checking your investments once or twice a year. Over time, fast-growing assets might start taking up a larger percentage of your portfolio than you planned.
Rebalancing means adjusting your investments to bring your portfolio back in line with your target allocation.
Your target allocation is the planned mix of investments you want to hold. For example, you might decide to invest 60% in shares, 30% in bonds and 10% in cash.
Over time, some investments may grow faster than others, causing that mix to change. Rebalancing helps restore the balance you originally intended.
- Check asset values: Look at the current total value of each investment.
- Spot uneven growth: Identify which assets grew larger or smaller than your target mix.
- Adjust holdings: You could buy or sell small amounts to restore your planned balance.
You might also review your portfolio when personal goals change, like buying a home. Many ready-made investment options automatically rebalance your portfolio.
Checking investments too often may lead to unnecessary stress or emotional trading decisions.
Summary
An investment portfolio is a collection of assets you hold.
Key points to remember:
- Beginners can start a portfolio with small monthly payments.
- Spreading money across different assets and places may help manage risk.
- Pooled investment funds can be a simple way to buy many assets at once.
- Your risk balance depends on your personal goals and timeline.
- Checking investments once or twice a year helps keep your portfolio on track.
If you feel ready to start investing, explore ready-made Shepherds Friendly products to build your portfolio today.
Please note: No advice has been given by Shepherds Friendly, and if you are in any doubt about your options relating to building an investment portfolio, then you should contact a financial adviser. There may be a charge for financial advice, and the cost should be confirmed to you before any advice is given.
