How to Build an Investment Portfolio

In the third video of Morningstar's five part Guide to Investing we explain how to get started on your investing journey and build your investment portfolio

Emma Wall 13 March, 2015 | 10:18AM
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Hello and welcome to Morningstar’s Guide to Investing. In the first video we explained why you should invest and in video two you identified your investment goals and worked out how much you can afford to save every month.

In this, the third video in the series, we explain how to get started on your investing journey and build your investment portfolio.

First time investors can choose between getting expert help from an adviser or wealth manager, or opting for DIY investment. If you are DIY investing it is best to start with just a few lower-risk funds to help build your confidence. As you add more investments over time these first lower-risk funds will form the core of your portfolio.

Morningstar analysts identify the funds which are suitable for a core holding within portfolio as part of their research. These funds are generally broad-based and non-specific.

Many investors start with a multi-asset fund. Depending on your appetite for risk you can choose one that has an equities exposure of less than 35%, between 20 and 60% equities exposure and 40-60% exposure to equities. Typically the larger the equities allocation the greater the risk – these funds can be more volatile, but also offer greater returns over the long term.

Additional investments can help display your conviction in a particular asset or region. For example, you could add a global equity fund with a low volatility, which balances the geographical exposure for you, or a flexible bond fund, which allows the fund manager a wide remit within the fixed income space.

Once you have these core funds in place, over time you can add more specialist funds – such as a fund which invests in emerging markets, or commodities. Individual equity and bond holdings are more risky, but help to personalise your portfolio to your needs. For example if you have a high conviction about a certain company, or wish to boost your income payments.

It is important to utilise your ISA allowance when setting up your portfolio. You can do this using an online investment platform. ISAs are wrappers which allow investments to be made exempt from capital gains tax or income tax payments. Most assets can be shielded in an ISA wrapper, including cash in a savings account, stocks, bonds, open-end and closed-end funds as well as life assurance policies and ETFs.

It’s time to get started.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Emma Wall  is former Senior International Editor for Morningstar

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