What is an investment portfolio?

Investment Insights

Our investment portfolio guide.

In this article you’ll learn:

  • The best way to manage an investment portfolio.
  • How to get the best out of your investment portfolio.

Super yachts, exclusive nightclubs and six-figure sports cars – everything you might associate with the term ‘investment portfolio’. But ‘managing your portfolio’ isn’t just for the super-rich or city traders with stratospheric salaries.

An investment portfolio can be any collection of assets or investments, from gold to equity market stocks. In fact anyone with a savings account and their own home has an investment portfolio.

Of course, investment portfolios can vary hugely in size. There’s no ideal or maximum size, but the larger and more complex your portfolio, the more you will need to keep an eye on local and global market fluctuations and make decisions based on individual asset performance and market conditions.

Many investors regularly seek investment portfolio management advice, while others consult a finance professional to get them started, then make their own way from there.

As you might expect, there are a thousand and one opinions, ideas and strategies generated by legions of advisors – some trustworthy, others not so – plus whole libraries of academic research devoted to the theories of investment portfolio management. To get started, you need to decide what kind of investments you want to make. Here are the fundamental types of investments, each with their own advantages and disadvantages.

Cash savings

The most widely understood and well-known form of investment – the good old-fashioned savings account. From standard savings accounts and simple tax-free ISAs (individual savings accounts) to national savings and investments (NS&I) and money market funds, cash savings are often low-reward investments, but also very low risk: there’s a very good chance you will make at least some small gains.

Watch out: you may need to pay tax on your gains, and some savings products carry fees.

Government and corporate bonds

Known as government bonds and corporate bonds, this type of investment is based on debt – you are lending governments or businesses money, and in return they pay you regular interest, plus the money you lent them (after a set time). Bonds issued by the British Government are known as ‘gilts’, and are considered to be very low risk (the chances of the UK government defaulting on a loan are minimal) although the interest rate is fixed.

Watch out: bonds can be low risk or high risk, depending on the company or government they are issued by – not every government or corporation is a safe bet. Make sure you stay up to date with credit ratings from agencies like Moody’s, S&P and Fitch Ratings.

Equities (shares)

Equities, also known as ‘stocks’ or ‘shares’, are traded on stock markets like the London Stock Exchange and the New York Stock Exchange. Equities give companies the opportunity to receive investment in exchange for a ‘share’ of its business. If the company grows successfully, then your share of that company also grows.   

Watch out: there’s a wide range of risk levels, and selecting the best performing shares can be tricky.

Property

The classic investment, but not always risk-free. Property investments can be commercial (such as shopping centres and office units) or private (your own house or purchasing a buy-to-let property).

Watch out: Investing in private or buy-to-let property can require a large initial investment – even a deposit can be many tens of thousands of pounds, often more. As we saw during the Great Recession of 2009, property values can drop as quickly as they rise, and risking the roof over your head is rarely wise. Over the last 30 years property has performed very well but in the UK every investor needs to be aware that changes to the planning regulations could have a large impact on future valuations (positive or negative).

Risk vs. reward

Diversifying your investments is a wise move, as it also spreads the risk. If one investment makes a loss, there’s a chance the other is breaking even or making a return.

Investing most or just a small portion of your hard-earned cash can be worrisome, as every type of investment carries some form of risk. You could, potentially, end up with less money than you invested or in some cases lose all of it.

Sound financial advice helps you find the risk level that works for you, and having an investment portfolio helps spread risk. Diversified investments are the most prudent option.

The next step in developing your investment portfolio

Building a portfolio can be as daunting as it is rewarding, but with expert advice from an investment portfolio management professional, there is money to be made. If a portfolio of investments is part of your lifetime financial plan, then now might be the time to get started.


If you’d like some advice on building your own portfolio, call us on 0333 241 9900.

We hope you find the education zone interesting and useful, but please remember it shouldn’t be viewed as financial advice.