How to build an investment portfolio

Hello. My name is Dan Coatsworth. Welcome to the latest instalment in AJ Bell’s ‘Investing for beginners’ video series.

So far, we’ve talked about reasons to invest, the different types of accounts and investments available, and working out how much you can afford to put away in an ISA or pension each month.

That’s covered all the essentials for preparing to invest - now it’s time to roll up your sleeves and start building your portfolio.

Before you decide where to put your money, you need to establish two key things: what is your risk appetite and how long is it before you need to access the money?

One mistake is to chase high risk stuff simply because you think they will give you best returns. There is nothing worse than fretting about investments if they aren’t going to plan. You certainly don’t want your stocks, bonds or funds to cause you sleepless nights. Therefore, it is important to be realistic about how much risk to take.

It is also important to know when you’ll need access to the money in your investment account. If it is soon, such as in the next two to three years, you won’t have time to ride the ups and downs of the stock market, so excessive risk-taking could backfire. Remember that share and bond prices do not travel in a straight line and that investing is a long-term game.

Another key consideration for building a portfolio is diversification. You want to spread your risks and one way is to invest in a range of different industry sectors, geographies and asset classes.

Having a mix of shares in places like the US, UK and Asia would provide geographical diversification.

The stock market is full of every industry sector you can imagine, so rather than put all your money into one place such as technology, why not consider other industries as well? That way, if one sector goes out of favour, hopefully something else in your portfolio will be thriving.

You might want to mix up the type of assets in your portfolio so the components don’t all move together. For example, different factors will influence shares, bonds, property, infrastructure and gold, so they might provide a broad spread to ensure your portfolio is diverse.

If you run with that idea, your portfolio selection might start with a multi-asset fund as the core holding.

AJ Bell’s Dodl app offers a range of multi-asset funds which are also called ‘all-in-one’ funds. You can choose from ones supplied by third parties or AJ Bell has a range of its own funds which are managed by our experts.

Anyone who wants a bigger choice of products can find them on AJ Bell’s own platform which features a range of multi-asset funds, as well as investments which could be put together in a portfolio to provide diversification.

For example, one route is to invest in a global equity fund and a strategic bond fund as the core holdings. You could then potentially consider adding satellite holdings such as a UK smaller companies investment trust, an emerging markets tracker fund, a healthcare investment trust, a technology fund, a UK commercial property investment trust and a gold ETF. That’s just an example - everyone likes to shape their portfolios differently.

If you want some inspiration, the funds section on AJ Bell’s website includes our Favourite funds list. We also have an investment trust select list created by our experts, as well as a range of our own funds. These are just some suggestions and you’ll be able to find a much broader range of funds and trusts on our platform.

AJ Bell cannot tell you where to invest - that applies whether you are using our platform or investing via the Dodl app. If you’re unsure about what to do, it might be worth talking to a qualified independent financial adviser.

I hope you found this video useful and don’t miss the final part of this series where we will discuss how to maintain a portfolio. Thanks for watching.