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How to build a successful investment portfolio

Choosing funds for your ISA, pension or Investment Account can be time consuming. You need an approach that ensures you get the right mix of investments with a level of risk that you’re happy with.

With investing, your capital is at risk

We suggest following five key steps:

1. Be clear about your overall goals

Are you primarily looking for capital growth from your investments, an income or a combination?

2. How much risk can you tolerate?

A principle of investing is that there is a relationship between risk and reward – we expect higher risk investments such as equities to return more than low risk investments such as cash. However, taking on a high level of risk does not guarantee greater returns or it wouldn't be risky! There are many ways to measure risk but a good starting point is volatility, which is the extent to which your investments fluctuate in value.

A key factor in deciding how much risk you can tolerate is the time period you expect to remain invested. Investors with a timescale of more than 10 years can tolerate more short-term volatility, for example by investing a higher proportion of their portfolio in equities, as they have time to recover from any short-term setbacks. In contrast, an investor who can only commit to remain invested for a short period of less than five years should focus on less volatile investments.

3. Choose your asset allocation

Asset allocation is the process of deciding how to spread your money across different types of investments such as bonds, equities, property, cash and absolute return funds and then across different regions and investment styles. As each type of investment will perform differently at various points in time, achieving a diversified asset allocation can help reduce overall volatility, as well as expose you to a wide range of opportunities.

4. Select high quality funds

Once you have chosen an asset allocation strategy, it is important to populate it with high quality funds in each category. To help you build your own portfolio we publish The Best™ Funds List which is made up of our investment team's favourite funds. Discover how we choose our favourite fund. Alternatively, you can choose one of our Ready-made Portfolios.

how we choose our favourite fund

5. Monitor your portfolio

Investing doesn’t finish at the point you buy your funds. It is vital to continue to monitor a portfolio once invested and to periodically review it. This is because your asset allocation will drift over time and sometimes formerly strong funds can deteriorate or require reassessment, for example if a fund manager moves jobs.

The Bestinvest website has all the tools and information you need to plan your asset allocation, select top quality funds and actively monitor your portfolios. Visit our Investment insights section for more information.

The Best Funds List

The Best Funds List

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