Research & Insights

Portfolio construction tips

Your portfolio is just another way of saying your financial assets – shares, bonds, cash and property. How you go about putting together your portfolio will depend on your overall goals for the investment as well as your personal attitude to risk.

Making the right choices for you

Before you decide on where to invest, you’ll need to carefully consider the following:

Goals
What are your financial goals? Do you want to save for a dream holiday, get a regular income or buy a bigger house? Establishing what you’re investing for will help you determine how to invest.

Time horizon
In other words, when will you need the money? If you need it in the next few years you’re generally better off investing in assets considered ‘safe’ or less risky. However, if you don’t need it for at least five years, you may consider it’s worth taking greater risks with your investments.

Attitude to risk
All investments involve some risk. Answering the two points above should help you decide if you’re ‘risk tolerant’ or ‘risk averse’. Would you be happy to invest in shares where the risk of their value falling in the short term may be high? Or at the other end of the scale do you prefer to put your money in a bank or building society account?

One thing to remember though, if your money earns less than inflation your money will effectively still be worth less. This is because you’ll be able to buy less from the high street as their prices will generally have risen at a greater rate than your savings have grown.

For more information read our understanding risk page.

Diversification
It’s a good idea to spread your money across a number of investments. This is known as diversification – it’s the investment equivalent of not putting all your eggs in one basket. By investing in a mixture of shares, bonds, cash and property, you can stay better protected against the potential peaks and troughs in asset values. Depending on the market conditions, while one asset value may go down, another one may go up.

Maintaining your portfolio

Both the market and your own personal circumstances will change over time, so it’s important to regularly review your portfolio. It’s a good idea to check it at least once a year to see if it’s meeting your goals. Review the investments against the four points above. Then you can make changes based on the current financial climate and your expectations and plans for the future.

Please remember the value of an investment and any income from it may fall as well as rise and is not guaranteed. You may get back less than you invest. Although there is no fixed term you should consider investments of this type as a medium to long-term commitment of, ideally, at least five years.


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