Takeaways
- Investment portfolios are groups of assets, like CDs, stocks, bonds, and funds.
- Investment portfolios should account for your risk profile and investment goals.
- Professional portfolio managers or robo-advisors manage investment portfolios.
- Investment portfolios tend to be overweight stocks when focusing on growth.
- Investment portfolios should be periodically rebalanced with proper asset allocation to meet your money goals.
What Is an Investment Portfolio?
An investment portfolio is a group of investable assets, such as savings accounts, CDs, stocks, bonds, cryptocurrency, and funds. It consists of your personal collection of assets all under one roof. Most people have their investments split between different locations, like their banks, online brokerage accounts, and employer-sponsored retirement accounts.
Personal finance experts recommend a holistic view of all your assets to ensure you are adequately diversified. You can hire a portfolio manager to help you create a checklist of all your investments, or you can use a robo-advisor that automatically links to your investment accounts.
You can be as active or passive with your investment portfolio management as you want. If you would like to have a pulse on the day-to-day changes in your account, you are probably more inclined to adopt an active management style. However, passive management might be a perfect fit for you if you want to be hands-off and focus on other things in your life.
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What Is Portfolio Management?
Portfolio management involves creating an investment strategy based on your financial goals, investment horizon, and risk tolerance. Creating a budding investment portfolio is one thing, but at some point, you will need to decide how to manage your investments.
Choosing someone with the proper credentials is a smart money move. Look for certified financial planners or charted financial analysts. Professionals with this designation have a forged knowledge of investment analysis, financial planning, and asset management. You can also let these professionals direct you on how you should allocate and invest in your portfolio. They might even help identify blind spots in your portfolio, like protecting your assets with term life insurance or recommend tax strategies.
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Managing Your Risk Tolerance
One of the most critical aspects of effectively building a portfolio is understanding your level of risk. To gauge your risk tolerance, you need to know how you feel watching your investment portfolio dip into the red with market falls and soar into the green with market rises.
Your risk tolerance dictates what types of assets you are invested in. For example, you should invest in high-beta stocks, cryptocurrency, or riskier real estate investments if you have a high-risk tolerance. Alternatively, low-risk tolerances tend to enjoy steady and safe returns with high-yield jumbo CDs, AAA-rated bonds, index funds, and exchange-traded funds.
It is important to note that your risk tolerance can wax and wane over time. You might start building your portfolio with a “risk-on” approach, only to realize you sleep better at night chasing more moderate investment gains. This is where rebalancing comes into play (more on this below).
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Types of Investment Portfolios
Professional asset managers recommend that clients change their asset allocation based on age, net worth, and time to retirement. There are three general classes of investment portfolios: conservative, moderate, and aggressive.
Based on your investment timeline and risk appetite, you can decide where along the investment spectrum you want to land.
Investment Portfolio:
| Portfolio | Stocks | Bonds | Age |
|---|---|---|---|
| Aggressive | 85% | 15% | 20s-30s |
| Moderate | 60% | 40% | 30s-40s |
| Conservative | 30% | 70% | 40s-50s |
Note: This table is for illustrative purposes only.
7 Steps to Create an Investment Portfolio
You might already be investing without realizing you have already started to build your investment portfolio. Here’s how it works:
1. Assess Your Investments
The first step to creating an investment portfolio is to analyze your current holdings. If you are starting from scratch, that’s no problem. However, you might also have assets spread across different accounts.
Write down where your funds are located, and don’t forget to include your savings, checking, CDs, stocks, bonds, real estate, or crypto. Once you know where everything sits, you can decide what management style you want to adopt.
2. Decide Your Management Style
There are two main investment portfolio styles: active and passive management. Here are the differences:
- Active management is geared toward those who want to be in the weeds daily or monthly with their investments. You might like this if you are more of a stock trader or have a compulsion to know your exact money situation.
- Passive management is better if you prefer a more set-it-and-forget-it approach to managing money. It could also be ideal for your investment temperament if you like setting your investment parameters and then hitting cruise control.
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3. Choose a Portfolio Manager
Your portfolio manager will be your guide as you build your investment portfolio. You might feel sufficiently qualified to manage your own money (you made it, after all), or you might want professional recommendations or some combination of the two.
Here are the three approaches most people take:
- Self-managed portfolios are for people who feel sufficiently confident managing thousands or millions of dollars of their own money. If you are already a finance professional, this might be your route. Initially, you might feel fine, but there might come a point where you think your net worth needs to be professionally managed.
- Portfolio Managers give everyday investors expert advice on how to grow their investments. Even if you feel proficient enough to technically manage your own money, it is always nice to get someone else's recommendation.
- Robo-advisors are great for a middle-of-the-road option. They give you access to your investments, and they can also provide access to certified financial professionals. Hybrid robo-advisors can offer the best of both worlds. Get a hands-off approach, with check-ins based on when you need one.
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4. Curate Your Investments
You should open an online brokerage account if you don't already have one. These accounts will allow you to invest quickly and build a portfolio over time. Here are some types of investments you can make:
- Stocks are ownership pieces of a company. Retail and institutional investors trade publicly traded stocks on the Nasdaq or NYSE stock exchanges. Stocks are highly liquid and can range in risk depending on the market capitalization, stage of business, and growth prospects. Learn how to invest in stocks.
- Bonds are short-term IOUs from a company or government to investors. Corporate bonds are rated by Moody's and Standard and Poor’s, which give these bonds a credit rating. Investors use these credit ratings to determine their risk-return profile. Read more about how to invest in bonds.
- Mutual Funds are pools of money that invest in a basket of stocks, bonds, or a combination. Mutual funds are attractive to investors because of their diversification. These funds can focus on investing in only one asset class or subcategories. For example, you can invest in mutual funds that invest exclusively in international stocks or U.S.-based mid-capitalization companies. Read more about mutual funds.
- Target date funds are a collection of stocks, bonds, and other investments that automatically rebalance over time. They are low-cost, easy to use, and generally broadly diversified funds. These funds have an expiration date, say 2050, and as the fund approaches that date, it shifts from riskier holdings in stocks to more conservative bond and income-based investments. Read more about Target date funds.
- Real estate investment trusts (REITs) are dividend-paying stocks that invest exclusively in real estate properties. REITs are companies that own, operate, and finance investments in real estate. Investors are drawn to REITs because they remove the headache of owning rental properties. Instead, you can invest in a REIT and get the benefits of rental income via dividend payments. Read more about REITs.
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5. Decide on Asset Allocation
Asset allocation should be a key part of your long-term capital preservation strategy. Based on your risk tolerance, you will need to determine the right mix of stocks and bonds to hold. Even if you know you are more of an index investor, you still need to decide on the right split between stock and bond index funds.
There are different splits of stock and bonds: conservative, moderate, and aggressive (discussed above). Your aim should be to calibrate your portfolio for growth and steady growth for where you are in life. For example, you shouldn't have 95% of your retirement savings in volatile stocks if you are about to retire. Instead, you should rebalance your holding to a fixed-income strategy.
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6. Rebalance When Appropriate
Rebalancing your portfolio is good financial hygiene. It consists of adjusting your portfolio back to your desired asset allocation after it has shifted.
For example, let’s say your ideal asset allocation today is 80% stocks and 20% bonds. With the help of a hybrid robo-advisor, you have had a dynamite couple of years being invested in the S&P 500 and Dow Jones. However, your investment gains have now caused your asset allocation to be 90% stocks and 10% bonds. At this point, you should rebalance your holdings, moving some of those stock gains over to more conservative bond holdings.
Some asset managers recommend rebalancing every quarter, six months, or annually. Regularly monitoring your asset allocation is essential for knowing when to rebalance and should be part of routine portfolio maintenance.
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7. Grow Your Portfolio
With the proper infrastructure in place, you can focus on increasing your portfolio. To grow your portfolio, you must select the right investments and contribute regularly to your accounts.
You should also take advantage of "free money" offered by your employer. If you have an employer-sponsored 401(k) plan, you should make sure that you are contributing at least the minimum amount required to get matching contributions.
It is important to remember that investment portfolio management is not about adopting a get-rich-quick mindset. Instead, it is about focusing on the long term, meeting your investment goals, and investing within the parameters you set.
Smart Summary
Investment portfolios are curated collections of investment assets, ranging from stocks to cryptocurrency. You can build your investment portfolio over time and increase your net worth along the way. Your investment portfolio should shift over time as you calibrate to your desired level of portfolio risk. Generally speaking, younger investors should be heavily weighted towards stocks, and if you are approaching retirement, you want more cash and fixed-income investments.
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(1) Last Accessed April 11, 2025.
