How to build an investment portfolio

1. Own a wide mix of assets

History shows that over the long term the stock market (representing shares in individual companies, also known as equities) has the biggest ups and downs but has also provided the best returns – so whatever your financial goals, having the bulk of a portfolio here makes sense if you have a long time horizon to invest. However, the value of investments can fall as well as rise and investors may get back less than invested – especially over the short term. 

Other types of investment, or ‘asset classes’, can help provide a more balanced investment portfolio. By performing differently and evening out some of the more dramatic moves they can help reduce risk. 

If you are more cautious or have less time to invest, then you’ll probably want more of these ‘balancing’ assets, notably bonds which represent loans to governments or companies. These pay interest to the holder and tend to provide a lower return in the long term compared with stock market investments but can still do better than cash and cash equivalents.   

2. Broaden your investment horizons

Although different stock markets are often ‘correlated’ with one another (they tend to move up and down together) they tend to produce different returns at different times with leadership varying from month to month and year to year – as the graphic below shows.  

Having a mix of geographical areas represented will help you capture as many opportunities as possible. No country – or sector – has all the best companies so make sure you have some money invested in all the major areas help to cover more bases.  

Ranked performance (%) of major share market investment areas over the past ten calendar years

Source: FE Analytics, data to 31/12/2025, total return basis with income reinvested. Based on Investment Association sectors: Asia ex-Japan, North America, Global Emerging Markets, Japan, Europe Ex-UK and UK All Companies.

3. Investment portfolio for beginners? Explore simple, "ready-made" investments

As with many things in life, it is possible to let perfect be the enemy of good. The challenge of trying to do the right thing can be intimidating, making it easy to give up and miss out on the long-term benefits of investing. Things don’t have to be complicated, though. As long as you have some good building blocks to begin with, simple, broad and low-cost products to get you started, then it is likely you’ll be moving in the right direction. 

Keeping it simple when it comes to investing could mean a ‘tracker’ or ‘index’ fund that aims to replicate the performance of a market by owning all or most of the companies in it. A global tracker, for instance, will cover a large proportion of all the companies in the world. 

Meanwhile, ‘multi asset’ funds such as one in our own range can offer a handy way to access a professionally managed, diverse portfolio for a certain level of risk. They cover lots of different areas – equities, bonds and other areas – in a single investment, so they can make a great first investment portfolio for beginners. 

Please note that investment decisions in mutual funds and other collective investments should only be made after reading the Key Investor Information Document or Key Information Document, Supplementary Information Document and Prospectus and understanding the risks involved. 

4. Consider core and satellite strategy

Starting simple can help build confidence in investing and allow you to take some tentative steps into creating a more sophisticated investment portfolio – if you want to. 

One investment strategy for either novice or experienced investors is a ‘core-satellite’ approach. This involves a central core of more mainstream investments to act as bedrock of assets surrounded by satellites, perhaps more specialist in nature, that personalise your portfolio. 

For instance, core fund positions could be held at 10-20% of the portfolio, depending on their breadth, with satellites at around 5%. Giving yourself a framework of overall asset allocation and structure to stick to will help avoid risks building up, and it is best practice to rebalance your portfolio periodically to the desired weights. 

It’s worth considering a mix of fund styles too. In building a balanced investment portfolio, if you only have the same type of fund, such as ‘value’ or ‘growth’ in each geographic area, you won’t be as diversified as if you blend funds of various types. 

Remember, don’t just rely on past performance. Lots of investors look for investment funds that have the best recent returns, but this can be a mistake. You might join the upward momentum for a time, but outsized performance often reverses, leaving you with an underperforming asset. Broad, passive strategies help avoid this problem as they just follow the market as a whole, though even these can have a bias to certain types of companies. 

There are thousands of funds to choose from. To narrow this down to a more manageable number, you could take a look at our Preferred List, which represents fund ideas for new investment across the main investment areas compiled by our Research Team. 

Always remember to keep to the rough mix of assets you are comfortable with – also known as ‘risk tolerance’. More shares exposure if you are happy with taking more risk and investing for the long term, more stabilising assets such as bonds for ironing out those peaks and troughs into a smoother journey. 

You could also consider investing in more specialist assets to diversify your portfolio allocation further – things such as real estate (for instance through investment trusts in this area), private equity, commodities such as gold and targeted absolute return funds. 

Learn more about diversifying your investment portfolio 

5. Don't forget tax 

Even if it doesn’t seem relevant in the shorter term, tax relating to investments – income tax and capital gains tax – can become an issue. To allay any concerns, either present or future, house your investments in an Individual Savings Account (ISA) where these taxes don’t apply. 

Alternatively, if you are investing for retirement, and don’t need access to your money before then, you can use a pension such as our SIPP. When you contribute to your pension, the government adds money. This is called pension tax relief and is one of the main advantages of using a pension to save for retirement. You should prioritise your workplace pension, if applicable, as your employer will make contributions on top of your own. 

Not everyone is aware of the special helping hand of tax relief, but it can have a considerable impact on the size of your investment pot and the income you are paid. It usually makes pensions the most efficient way to invest for retirement. 

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