This question of the ideal investment portfolio is something that has been argued and debated continuously.
At one stage, there appeared to be an answer when research showed that a portfolio with a 60/40 split of stocks to bonds appeared to be top dog.
However, many now agree that having 60% of your investments in stocks and 40% in bonds is no longer a good idea.
So, what is the best investment portfolio to have?
When should I invest?
Before I delve into the trenches here, I want to take a quick step back.
It’s easy to get excited about investing but it’s important to make sure your house is in order first.
Once you’ve built a good financial foundation for yourself, only then should be looking into investing.
On top of that, investing for the long-term should be your priority. The information that follows is really to help you create a portfolio built for the years ahead, not the next few months.
What is the ideal investment portfolio?
This is a bit of a misleading idea. There is no one-size-fits-all perfect portfolio for everyone.
It really depends on the kind of person you are and what financial goals you have.
Things like risk tolerance and the amount of time you’re investing for will play a big part.
This isn’t really helpful if you are looking for the best way of creating an investment portfolio with a decent asset allocation. So what I’m going to do is describe the current set up that I’m aiming for at the moment.
How do you create a good investment portfolio?
Diversification is key. This just means that your investments are spread across a number of different assets.
Doing this can help reduce your risk and increase the chance that your portfolio will perform well under all kinds of conditions.
Luckily, investing is now easier than ever and we have access to just about every market conceivable.
So these days, there’s no excuse for not creating a well-diversified portfolio that’s built to last.
What is your version of an ideal investment portfolio?
Okay, so this is going to be my idea of a good portfolio. It’s structured this way down to my personal beliefs and what I’m comfortable investing in.
60% Index Funds
20% Investment Trusts
5% Individual Stocks and Shares
Again, this is just my personal preference but I’ll explain my reasoning.
Why do have those asset allocations?
Let’s go through them in order.
60% Index funds
These are a great backbone to have in any investment portfolio. I like to have global coverage with equities so right now I own these two Vanguard funds:
- ‘ESG Developed World All Cap Equity Index Fund’
- ‘ESG Emerging Markets All Cap Equity Index Fund’
With a 90/10 split. ESG investing isn’t perfect but it’s a small way I can try and make better choices with my investments. Holding these two funds gives me access to companies of all sizes in most global markets.
20% Investment trusts
I am a big believer in managing your own investments. However, I am happy for part of my portfolio to be managed by experts. This costs a fee, but they will search out great companies and do a lot of research and leg work. My aim is to own four trusts that cover different market areas:
- Scottish Mortgage - This one is for long-term technology growth.
- Temple Bar - For value investing.
- Impax Environmental Markets - Focuses on clean technologies to try and improve the world.
- City of London - A solid dividend option.
A controversial topic, but I’m a big fan of Bitcoin. I understand it more than I do traditional commodities such as gold.
I think holding some Bitcoin is a good hedge against inflation and I like having a small part of my portfolio diversified into the king of the cryptos.
There are potentially massive gains available in the cryptocurrency space.
It’s an extremely volatile and unpredictable area but potential returns are better than anything else on the market. I only invest money I’m willing to lose, and because I’m young enough, the risk of investing in this area is worth it for me.
Like I mentioned, I understand this space more than I do some other investments areas. So for me, it makes sense to invest in what I know. It is super risky, but I won’t be devastated if I lost this.
5% Individual Stocks and Shares
You can make some great gains by successfully selecting stocks and shares to invest in.
However, it’s an extremely complicated and unforgiving field. Unless you really know what you’re doing, I wouldn’t allocate too much of your portfolio to individual companies.
Some investments can be fun but it can be time-consuming and hard to manage. I like the occasional share purchase but I don’t make a habit out of it. I’d rather lump more into my funds.
This is separate to regular savings or an emergency fund. I think having some cash handy ready to invest can be really useful.
Having this bit of money means that you can potentially invest if a good opportunity arises. The market might dip and having some spare funds to pick up a bargain investment opportunity can be really helpful.
Everyone will have their own ideas about what they think is the ideal investment portfolio.
I hope that by showing you what I aim for, it might provide you some ideas or inspiration.
Picking the right asset allocation is always a bit of a balancing act and I will probably adjust my own over the years to suit what’s happening around me.