When people first start investing, they often begin with one question:
“What should I invest in?”
It sounds logical, but choosing the investment is actually one of the final steps. Building a successful portfolio starts with understanding yourself.
Ask yourself:
What makes me happy?
What do I actually want my investments to achieve?
Because investing is not just about numbers on a screen. It is about building a future that gives you more choices. Only then can you start to understand:
Your goals
Your timeframe
Your attitude towards risk
Your ability to stay invested when markets fall
The best portfolio is not always the one with the highest potential return. It is the one you understand, believe in, and can consistently stick with.
Start with your goal
A good question to start with might be:
“When do I need this money?”
Your timeframe has a huge impact on how you invest. Money needed in the next few years probably should not be exposed to large market swings. Cash savings or lower-risk options may be more appropriate. But money invested for decades provides a completely different opportunity.
Long-term investors have one major advantage:
Time.
Time allows you to ride through market downturns, continue investing, and allow compounding to work. The longer your timeframe, the more risk you may be able to accept.
Understanding asset allocation
One of the biggest decisions you will make is your asset allocation. Simply put:
How much of your money goes into different types of investments?
The main building blocks are usually:
Stocks
When you buy shares, you own a small piece of a company.
Stocks have historically provided strong long-term returns, but the journey is not smooth. Markets regularly fall, sometimes significantly. The reward for accepting that uncertainty is the potential for higher growth.
Bonds
Bonds are effectively loans to governments or companies.
They have traditionally been used to provide stability, reduce volatility, and generate income. However, they are not risk free. 2022 was a painful reminder when both stocks and bonds fell together as interest rates increased rapidly.
Diversification helps, but nothing works perfectly all the time.
Cash
Cash is often overlooked.
It may not create significant long-term wealth, but it provides flexibility and security. Having cash available can stop you being forced to sell investments at the wrong time.
Choosing your risk level
A 25-year-old investing for retirement and a 65-year-old approaching retirement probably should not have identical portfolios.
Someone younger may choose a higher percentage of stocks because they have decades to recover from market downturns. Someone closer to needing the money may prefer more stability.
Examples could be:
100% stocks — maximum growth focus, but large swings.
80% stocks / 20% bonds — growth focused with some stability.
60% stocks / 40% bonds — more balanced.
There is no perfect answer because risk is so personal. The right portfolio is one that allows you to sleep at night; choose an approach that makes you feel comfortable.
Keep diversification simple
Many investors believe owning lots of investments automatically means they are diversified. But owning ten technology companies is not true diversification.
A diversified portfolio spreads your money across:
Different countries
Different industries
Different company sizes
Different assets
This is why global index funds have become so popular. One fund can provide exposure to thousands of companies around the world.
One popular strategy is the core and satellite approach.
The idea is simple: build your portfolio around a diversified core investment and add smaller satellite positions around it.
Core (80–90%)
Global index funds
Broad diversification
Low fees
Long-term compounding
Satellites (10–20%)
Personal interests
Investment themes
Specific opportunities
Alternative assets
The core builds the foundation and the satellites provide flexibility.
Final thought
Building wealth is rarely about finding the perfect investment. It is about creating a sensible plan and having the patience to follow it.
As my own portfolio has grown over the years, I have continued to learn, adapt and refine my approach. But the foundations remain the same:
Keep costs low
Diversify
Manage risk
Stay consistent
The biggest threat to most investors is not choosing the wrong fund. It is abandoning a good plan when markets become uncomfortable. Investing rewards patience.
That is the power of compounding.
The Compounder
Long-term investing made simple.
Thanks for reading The Compounder.
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I'm also always looking for ideas for future editions, so if there's an investing topic you'd like explained in plain English, let me know and I'll add it to the list.
Remember, successful investing isn't about being brilliant. It's about making sensible decisions consistently and allowing time to do the heavy lifting.
Until next time, keep compounding.
The Compounder is for financial education and commentary only. I am not authorised or regulated by the Financial Conduct Authority and I do not provide financial advice, investment advice, or personal recommendations. Nothing published here should be taken as a recommendation to buy, sell, hold or switch any investment, fund, pension, ISA, crypto asset or financial product. Always do your own research and consider speaking to an FCA-authorised financial adviser if you are unsure.