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Building an investment portfolio

How to use the Which? investment portfolio tool

By Michael Trudeau

Article 4 of 5

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How to use the Which? investment portfolio tool

We guide you through our unique investment portfolios, how to use them and how to choose the right one for your needs.

We've built a range of investment portfolios – a menu of different asset allocations that cater for conservative investors who don't like the idea of losing much money, through to adventurous investors who are happy taking on greater risk for a much higher potential return.

We've included all things essential to building a successful portfolio, such as a diversified range of investments, the time horizon you have to invest and how much risk you might be taking on when investing – all framed, uniquely, in the context of how much you might lose. 

We believe this can help you make sensible and responsible choices with your investment portfolio, and offers you a solid foundation from which to start your investment journey.

Selecting asset classes for the investment portfolios

The portfolios include the four main asset classes you need to properly diversify and spread risk, as well as grow to your money in tandem with your attitude and tolerance of risk. These are: cash, bonds, equities and property. 

To help diversify the portfolios further, we've broken down these asset classes into different areas. Depending on your attitude to risk, your portfolio may include a few of these sub-asset classes or all of them, as they have different levels of risk. 

Try out our unique investment portfolio tool yourself to see whether the results match where you're already invested - or if you're looking for ideas of where to invest in the first place.

How much to invest in the investment portfolios

The portfolios are designed for an investment of £10,000. You can contribute this as a lump sum or as a monthly regular contribution of around £830. Of course, you can invest more or less than this, but our growth projections are based upon a £10,000 initial investment.

Risk and reward of the investment portfolios

Risk and reward are intrinsically connected. The more risk you take on, the greater the potential reward. Conversely, as you strive for higher growth, the more you can potentially lose. We know that when you invest, you not only want to know how much you can potentially make but also how much you’re putting at risk. This is what the investment portfolios aim to do. 

With the investment portfolios, you'll find:

  • Expected growth: how much we expect the portfolios to grow by over different periods of time, in today's money. We've included 3, 7, 15 and 40-year figures.
  • Lowest returns: what might happen if our expected growth doesn't work out. There's a one in 20 chance that the portfolios grow by less than this.
  • Potential loss: When you invest, you must accept that there will be times when the value of your investment portfolio will fall. You'll have good years and bad years. The potential loss reflects the size of these 'bad years'. For example, the lowest-risk portfolio has been designed so that, in a bad year, you should expect to face a loss of at least 5% of your investment.

As the portfolios increase in risk and potential reward, so does the amount you might lose in a 'bad year'. With the highest-risk portfolio, you should expect a fall in the value of your portfolio of at least 40% in that bad year.

We've looked at risk in terms of the sum of money you may lose over any one-year period in each of the portfolios, but remember there are no guarantees. In designing the portfolios, we've calculated that there's a 95% probability you won't lose more than the stated amount on each of the portfolios in a bad year, but there's still a 5% chance you might.

We think these odds are a sensible way of understanding the downsides, as well as the upsides, when you invest.

How long to invest in the investment portfolios

The portfolios are built for long-term growth of your money, and not designed for those looking to get an income from their investments. If you only have a short timeframe (typically five years or less) or don't want to lose any of your capital, you should consider cash deposits and savings accounts, which won’t put any of your money at risk.

Broadly, the asset allocation for each portfolio will remain the same. This way, you aren't constantly chopping and changing your portfolio or trying to time the market through the year, keeping your portfolio as simple and hassle-free as possible. We're constantly monitoring the portfolios to ensure that they meet their risk targets.

This information does not constitute financial advice, but can act as a helpful starting point for a conversation with a financial adviser. Read our guide to financial advice explained to find out how to find one. 

  • Last updated: June 2017
  • Updated by: Michael Trudeau

Which? Limited (registered in England and Wales number 00677665) is an Introducer Appointed Representative of Which? Financial Services Limited (registered in England and Wales number 07239342). Which? Financial Services Limited is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited. Registered office: 2 Marylebone Road, London NW1 4DF.