Jasmine Birtles
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What is an Investment Portfolio?
Ruby Layram
21st Jan 2025
You’ve heard of an investment portfolio – but what actually is it? Do you need to know lots about the stock market to have one? (Short answer: no!).
Your investment portfolio is a fancy word for everything you’ve got your money invested in. That COULD mean the stock market – but it can also include other things like property, peer to peer lending, and your pension.
Let’s go back to basics and look at what you might have in your investment portfolio (without even realising it).
What is an Investment Portfolio?
In its simplest terms, an investment portfolio is a collection of financial assets. These assets could be anything from stocks and bonds to property, mutual funds, or even cryptocurrencies. If you own a combination of these, congratulations—you already have an investment portfolio!
But it’s not just about owning a mishmash of assets. The key to an investment portfolio lies in its structure. How your investments are allocated across asset types, industries, and geographies directly impacts how much risk you’re taking on—and how much return you can expect.
Imagine your portfolio as a pie chart. Each slice represents a different asset class. Some slices might be bigger (e.g., stocks, if you’re chasing growth), while others might be smaller (e.g., bonds, if you’re playing it safe). The way you “slice” your portfolio depends on your goals, risk tolerance, and timeline.
What Is the Difference Between an Investment Fund and a Portfolio?
Now, here’s where people often get confused. Is an investment fund the same as a portfolio? Not quite!
An investment portfolio is a broad term that includes all the assets you own. Think of it as your entire investment basket.
Meanwhile, an investment fund is a specific type of investment vehicle within your portfolio. It’s a pool of money from multiple investors, professionally managed to buy assets like stocks, bonds, or property.
Let’s say you buy into a popular fund like the Vanguard FTSE 100 Index Fund. This fund will hold stocks from the UK’s largest companies, but it’s just one piece of your portfolio puzzle. While funds can simplify investing by diversifying your money across many assets, they’re just one component of your overall investing strategy.
So, in short: every investment fund is part of a portfolio, but not every portfolio includes investment funds.
Examples of a Beginner Investment Portfolio
If you’re just getting started, building a portfolio can feel overwhelming. it can be helpful to look at examples of investing portfolios. Here are 3 popular types to consider.
The 80/20 Investment Portfolio
The 80/20 portfolio is for the thrill-seekers. It’s made up of 80% stocks (or any high-growth asset) and 20% bonds (or any stable asset), designed for those with a high-risk tolerance and a long investment timeline (think 10 years or more).
Stocks (particularly growth stocks) offer the potential for high returns, while bonds act as a safety net during market downturns.
This type of portfolio is best for younger investors or those comfortable with market ups and downs.
For example, if you had £10,000 to invest, £8,000 might go into global stock funds, and £2,000 into UK government bonds. Over time, this allocation could grow your wealth significantly—but it does come with higher volatility.
The 70/30 Investment Portfolio
The 70/30 portfolio is a balanced option, with 70% in growth assets and 30% in stable assets. It’s a great middle ground between growth and stability.
This portfolio still prioritises growth. However, it has a slightly larger cushion which could be beneficial during market downtimes.
Investors with this type of portfolio might put £7,000 into growth stocks, cryptocurrencies or startups, and £3,000 into bonds or Gold. This strategy provides solid returns with less dramatic swings.
The 60/40 Investment Portfolio
The classic 60/40 portfolio is a timeless choice, often favoured by retirees or cautious investors. With 60% in growth assets and 40% in stable assets, it prioritizes stability without completely sacrificing growth.
Bonds take centre stage here, reducing the overall risk while providing consistent income. This portfolio is best for those looking to invest for retirement or anyone looking for dependable returns with minimal stress.
If you’re investing £5,000, £3,000 might go into dividend-paying stocks, and £2,000 into a bond ETF. This approach ensures your portfolio weathers economic downturns while still growing steadily.
How to Calculate Investment Portfolio Returns
So, you’ve built your portfolio. But how do you know if it’s performing well?
The best indicator to pay attention to is returns (the amount of profit that your portfolio generates).
To calculate your returns, use this formula:
Portfolio Return = (Ending Value – Starting Value + Dividends) ÷ Starting Value × 100
For example, if you started with £10,000, earned £1,000 in dividends, and your portfolio is now worth £12,000:
(£12,000 – £10,000 + £1,000) ÷ £10,000 × 100 = 30% return.
Remember, returns can vary significantly year to year. Comparing your portfolio’s performance against a benchmark index (like the FTSE 100) can help you gauge whether you’re on track.
How to Calculate Investment Portfolio Risk
Returns aren’t the only thing that you should be tracking as an investor. You also need to track risk.
Calculating risk helps you understand how volatile your portfolio is, and how much you could potentially lose.
A common measure of risk is standard deviation, which shows how much your portfolio’s returns fluctuate over time. Higher deviation means higher risk.
For a simpler approach, look at the asset allocation. Stocks carry more risk than bonds, so a portfolio that relies heavily on stocks will be higher risk.
You can also use online tools or speak to a financial advisor to assess your portfolio’s risk profile.
Next Steps
Now that you understand what an investment portfolio is, take some time to asses your investing goals and determine which type of portfolio is best suited to you.
- Set clear goals: What are you investing for? Retirement, a house, or a rainy-day fund? Define your objectives before anything else.
- Assess your risk tolerance: Are you comfortable taking risks, or do you prefer a safer approach? Your answer will guide your asset allocation.
- Stay consistent: Investing is a marathon, not a sprint. Regular contributions and a long-term perspective are key.
With the right strategy, your investment portfolio can grow into a powerful tool for building wealth over time
Once you have set up your portfolio, its a case of trusting the process and sticking to your plan. Remember, it’s normal for returns to fluctuate and you should take a long-term approach rather than expecting returns overnight.
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Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.
An interesting article. Thanks.