Building an investment portfolio from scratch can be intimidating – but as long as you understand the basics such as time horizons, diversification and portfolio rebalancing, there is no reason you cannot set yourself up for investment success. The first thing you need to do is understand your risk profile. This dictates how much of your portfolio should be invested in “risky” assets such as shares compared with traditionally safer assets such as bonds and cash. Darius McDermott of FundCalibre, a fund rating service, says: “Often when people first invest, they tend to focus more on how much they can make rather than how much they can lose. This can lead to taking too much risk, then panic selling when markets fall, leading to a loss. Investors need to understand that periods of market downturn are inevitable and build a portfolio to match their risk tolerance.” The more of your money you put into the stock market, the bigger the falls can be and the more time it can take for your portfolio to recover. However, if you can handle the volatility, shares should reward you in the long run. According to analysis from the trading platform eToro, the chance of a positive return from the S&amp;P 500 index of leading American shares rises from 72pc after one year to 95pc after 20 years. Rob Morgan, of the wealth manager Charles Stanley, says: “The longer the time horizon for the intended investment, the more money an investor could consider allocating to shares. For instance, when investing for retirement many decades away, a portfolio mix that prioritises shares exclusively, or almost exclusively, could be considered.” If your timeframe is five years or less, you are likely to be better off keeping your money in cash. Consider looking for a cash Isa with a decent rate so your interest can be paid tax-free. Which funds should you invest in? Growth assets Mr McDermott says: “To future-proof a portfolio, we like diversified stock market funds such as JOHCM Global Opportunities. We would also suggest an allocation to bonds, which look more attractive now than they have in decades. General, flexible bond funds, such as Invesco Tactical Bond, are a good starting point.” For cheaper options, Mr Morgan recommends an index fund such as the Vanguard FTSE All-World ETF or the Fidelity Index World fund, which have annual charges of 0.22pc and 0.12pc respectively. “For the bond part of a portfolio there are some broad, low-cost and straightforward options such as the Vanguard Global Bond Index fund and the SPDR Bloomberg Global Aggregate Bond (Currency Hedged) ETF,” he adds. Recommended What are bonds, how do they work and how do you buy them? Read more Defensive assets Mr McDermott says: “Taking an ‘average’ pensioner, I’d suggest a couple of global income funds that aim to grow income, such as M&amp;G Global Dividend and Trojan Global Income, then a bond fund with a high yield such as Jupiter Strategic Bond, an alternative fund with a high yield such as Momentum Diversified Income and a global growth fund.” Mr Morgan says: “There are also investment trusts worthy of mention, including Personal Assets, whose manager blends share ideas with ‘balancing’ assets such as bonds and gold.” How do you build a diversified portfolio? To understand the importance of diversification, look at the performance of Fundsmith Equity, a highly popular fund that consists of a small number of high-quality companies. Since 2010 the fund has delivered an annualised return of 15pc – an excellent figure. But it has now underperformed its benchmark index for three years in a row.mber 2022. But over the past 10 years the company has delivered a total return of about 800pc. Recommended Don’t invest a penny until you’ve read these 11 key rules Read more Broaden your horizons with award-winning British journalism. Try The Telegraph free for 3 months with unlimited access to our award-winning website, exclusive app, money-saving offers and more. View comments

Graphic designer and content writer

Useful links

Company

Information

Content Writers

Freelancers

Freelance Jobs

Online Jobs

Designers

Developers

Translations