So, you want to start investing but have no idea how to actually build a portfolio? Don’t worry, you’re not alone! The good news is that there’s no one-size-fits-all approach. Your portfolio should fit you — your financial goals, your comfort with risk, and how long you plan to invest.
Think of it like putting together a meal plan. Some people like a balanced diet (a mix of everything), some prefer a high-protein approach (all about the gains), and others go all-in on their favourite foods. Investing works the same way — there are different strategies to suit different people.
In this guide, we’ll break down three of the most common portfolio construction approaches: the core-satellite approach, the 60/40 portfolio, and the all-equity portfolio. We’ll cover the pros and cons of each so you can determine which might be right for you.
Before diving into specific portfolio strategies, first and foremost, your tolerance to risk is key when investing. Are you comfortable with market fluctuations, or do you prefer more stability?
A few other key factors to consider are:
Understanding your risk profile is an essential first step in your investment journey. Your risk profile takes into account two main things: risk aversion and risk capacity. This video explains what they are, how they work together and ultimately how to determine your own personal risk profile before making your first investment.
The core-satellite approach combines a broadly diversified core with smaller satellite investments to enhance returns. The core is typically made up of a global equity fund, while the satellite holdings can include more specialised or higher-risk investments like emerging market funds, thematic funds, or even individual stocks.
The 60/40 portfolio is a traditional approach that splits investments into 60% stocks (for growth) and 40% bonds (for stability). The idea is to provide a mix of high-return potential from stocks and the lower volatility of bonds.
Want to hear from the experts? Philip Chandler, co-manager of the Schroder Global Multi-Asset Cautious Portfolio, told us more on the Investing on the go podcast back in August 2024.
An all-equity portfolio consists entirely of stocks, often through diversified ETFs, funds and investment trusts. This strategy focuses purely on growth and is most suitable for those with a long-term horizon.
Whilst a viable strategy, we discuss why everyone should consider some fixed income in a recent Investing on the go podcast.
Each portfolio strategy has its strengths and weaknesses, so the right choice depends on your situation:
It’s also important to remember that your portfolio isn’t set in stone. As your financial situation and goals change, you can adjust your asset allocation accordingly. This video will help you focus on how to set your investment goals and understand how they may evolve over time.
Regardless of which approach you choose, it’s important to keep a few things in mind. The first is fees – always make sure you understand how the cost of an investment, or platform, will influence your returns over time. Secondly, it’s important to rebalance periodically, no matter which approach you take. Market movements can shift your asset allocation, so review your portfolio at least once a year. And finally, stay diversified, spread your investments across different asset classes and geographies.
Building a solid investment portfolio doesn’t have to be complicated. By understanding different portfolio construction strategies and aligning them with your personal risk tolerance, time horizon, and financial goals, you can create a portfolio that works for you.
The most important thing is to start investing and stay consistent — over time, your portfolio will grow, and so will your confidence as an investor.
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