How to Build a Strong And Effective Investment Portfolio

Author: Shubhankar Sen on Jan 05,2023
investment portfolio

A collection of assets, such as stocks, bonds, mutual funds, and exchange-traded funds, make up an investment portfolio. Investment portfolios are designed to minimize the risk of a negative return on investment for the investor. The goal is to balance the potential for greater returns with lessened risk. It is important to invest in products that suit your personal preferences, goals, and needs.

Most investors have their own individual portfolios that they manage themselves. But some use an investment advisor to help them make decisions concerning the types of investments they should buy and sell. If you want to delegate the administration of your portfolio to a Robo-advisor or financial adviser, you can do so. They will look after your assets on your behalf.

Why should you build an investment portfolio? 

Your finances have a structure thanks to portfolios. They assist you in supervising and managing your money. Your assets may be more diverse, and your risk can be distributed among stocks, bonds, and other forms of investments with the use of a portfolio. In addition to helping a person preserve their invested money, a portfolio with a suitable (diversified) mix of assets enables them to structure it such that it has the potential to generate attractive returns.

Primary types of investment assets around the world

Equities (stocks), debt (bonds), and money market instruments are thought of as the three primary asset classes. Many investors may now view real estate, commodities, futures, derivatives, and even cryptocurrency as different asset classes.

How to build an investment portfolio

Making an investment portfolio is a very important thing. To make a good portfolio, one should know about the below topics. 

  • Financial targets

Consider your short-, mid-, and long-term financial goals before you start constructing your portfolio. Goals that can be completed in less than three years include trips and home renovations. Mid-term objectives can be set for a period of three to ten years and might include things like paying for the college education of your children. Long-term objectives like saving for retirement or purchasing a home might take more than 8-10 years to complete. Therefore, our asset allocation should be in line with these objectives.

  • Asset Management

Investing in a variety of assets, such as stocks, bonds, government securities, real estate, commodities, and cash, is the first rule of portfolio construction. A prudent asset mix might be essential for protecting your portfolio against a decline in a certain asset or market. Your financial goals, investment horizon, and risk tolerance are the three main factors you must take into account while allocating assets.

  • Horizon for investments

This indicates the length of time you plan to keep an investment. Your financial objectives should guide your decision on the investment horizon for the various assets in your portfolio. Long-term, medium-term, and short-term goals should all be covered by the assets in your portfolio as they mature.

  • Consider your emergency and health insurance options

An emergency fund and health insurance are two key elements of every portfolio. To safeguard your portfolio from unforeseen risks, it is crucial to plan for these elements. An unforeseen disaster, like losing your job or having your car break down, is what an emergency fund is there to help you with. An emergency fund may be between two and five months' worth of pay, depending on the anticipated expense.

To safeguard household finances from unexpected medical expenses, proper health insurance is also required. If you need hospitalization or long-term care, it makes sure that you and your family may get healthcare without putting your financial security at risk. If your current medical coverage is insufficient, you might also wish to get a top-up health insurance plan. Be sure to account for dependents, such as parents and children, while making medical coverage plans.

  • Capacity for risk

Your income, spending, and willingness to accept changes all affect your risk tolerance, which is the amount of risk you can tolerate. As well as varying from person to person, it is also subject to change throughout time. Your willingness to take risks, for instance, can rise as your income rises and fall when your costs and dependents rise. Age can affect risk tolerance as well; those who are nearing retirement may be less ready to endure high risk.

  • Diversifying your risks

One of the tenets of wise investment is risk diversification. It is founded on the idea that various types of assets have varying degrees of risk, and it entails diversifying investments to lessen the impact of hazards specific to each asset class. High-risk investments frequently produce higher returns compared to low-risk investments, which are generally linked with lower returns.

  • Buy mutual funds that have systemic cash flows

Many investors see mutual funds as secure investments where their assets are committed over an extended period of time. Mutual funds with a Systematic Withdrawal Plan (SWP) and Systematic Investment Plan (SIP) not only provide a secure investment option but also make it easier to maintain a consistent cash flow. 

Investors may withdraw a defined amount under an SWP at predetermined periods, which may be monthly, quarterly, or annually. In addition to guaranteeing a consistent return on investments, SWP funds provide investors the freedom to choose the quantity and frequency of withdrawals. 

  • Assess the qualitative risks of stock by researching the market.

To invest for the long term, you must also devote some time to researching the markets and comprehending the variables that affect their movements. The debt market, foreign exchange market, credit market, money market, and capital market are some of the major markets. 

Before investing in any stock, you must also consider the hazards involved. To do a qualitative risk analysis, you must consider the company's history, corporate governance, compliance, competitive advantage, brand value, and the existence of risk management methods.

  • Buy-hold your portfolio, but support it with a stop-loss order

In essence, an investment portfolio is created for the long run. You may also let the related risks play out by allowing your assets to mature over time. A buy-hold approach may be more advantageous for long-term investors than intraday trading, which needs continual attention and in-depth market knowledge.

While trading, it's crucial to control your losses using tools like stop-loss orders. It is a request made to a broker to purchase or sell a security at a specified price. For instance, if your stop-loss is set at 10%, the broker will sell the stock when it drops 10% below the price you paid for it, shielding you from any additional losses.

Tips on building a Risk-Based portfolio

Your risk tolerance is one of the most crucial factors to take into account when developing a portfolio. Your capacity for accepting investment losses in exchange for the chance of achieving larger investment returns is known as your risk tolerance.

Your risk tolerance is influenced by several factors, including how long you have before you reach a financial objective like retirement and how you emotionally manage market fluctuations. If your target is several years away, you will have more time to weather the market's highs and lows, allowing you to profit from the market's overall upward trend.

What is the ideal number of investments for a portfolio?

There is no "ideal" portfolio size, although 10 to 20 equities are the range that most investors agree upon. Your money will be protected if one or a few of your holdings decline, thanks to a diversification approach. Spreading your money over a variety of investments and investment kinds, or diversifying your portfolio, assures that your money will be secure even if the value of one or a few assets drops quickly since assets in different industries may make up for the loss and keep the portfolio balanced.

How To Keep Track of Your Investments 

When particular assets in your portfolio outperform or underperform, you should rebalance your portfolio once or twice a year to ensure you're on pace to meet your savings goal. Keep tabs on your investments and the general state of the market to determine when it is appropriate to trade.

A professional managing your portfolio is almost certainly going to charge you commission or transaction fees. These may accumulate as your portfolio gets larger, preventing you from saving money as rapidly. When making a savings plan, remember to include costs and keep an eye out for any changes to the charge schedule.


You must prioritize keeping your diversification throughout the whole process of building your portfolio. You must diversify within each asset class in addition to merely owning assets from each one. Make sure your investments in a particular asset class are dispersed throughout a variety of subclasses and industrial sectors. Mutual funds and ETFs allow investors to attain good diversification. Visit for more tips, information, and advice for all your stocks-related needs.