Maximising your investment portfolio

The word “tailored” is frequently used in investment management for a good reason. Everyone has different objectives for their investments, appetite for risk, stage of life and personalities. Some want to try to double their money fast, regardless of risk. Others need to take it slow and steady, accumulating investment returns gradually, while keeping the risk of losing money low.

That’s why investment portfolios are frequently said to be tailored. What’s right for one won’t be appropriate for another.

Maximising your investment portfolio means different things to different people, depending on what they want and their tolerance for risk. A young tech entrepreneur in his or her early 30s with surplus cash could think it was pointless targeting anything but the highest returns, happily accepting the possibility of significant losses along the way. Yet a cautious 60-year-old investing for retirement is likely to want a stable mix of stocks and low-risk bonds: predictability would be everything, accepting the lower likelihood of large gains.

When planning your investment portfolio, it’s important to do so through the lens of what’s right for you. The type and risk profile of your portfolio will vary accordingly.

Understanding investment portfolios 

It’s easy to get baffled by the science of investment portfolios. There’s a lot of academic research, chiefly from leading US universities, that dwells on the theory of how best to build a portfolio that will perform well in the future. Generally, studies seek to determine what will provide the best trade-off between investment returns and risk.

But when thinking of investment portfolios, it’s best to remember some simple facts. Most portfolios include two different kinds of investment: stocks (also known as equities) and bonds. Generally speaking, stocks are higher risk investments but also tend to provide higher returns. Bonds such as UK government gilts, or bonds issued by companies, have had lower but more predictable returns.

There are also other investments, or asset classes, that can be included in a portfolio. These include private market assets, like private equity, and commodities, such as gold. 

What is a portfolio? 

An investment portfolio is a group of financial assets that an investor buys to meet his or her financial goals. For instance, a portfolio might include between 10 and 100 investments from a range of different asset classes.

The main point in holding so many investments is diversification, i.e., spreading your risk of losses over multiple investments. After all, it’s hard to foresee whether a particular company might announce a set of annual profits that disappoint the stock market, triggering a fall in the stock price.

Equally, a skilled portfolio manager will want to spread their skill across a range of different stocks. Doing so maximises the likelihood of their superior investment skills leading to higher returns.

Once again, the type of portfolio and level of risk you opt for will depend on your particular investment goals and circumstances.

Different types of portfolios 

There are no strictly defined categories of investment portfolio but, broadly speaking, they tend to be split into five risk profiles, the names of which vary across different providers. Which you choose depends on your goals, personality, stage of life and risk tolerance. Below are the five types:

1.    Cautious portfolio:

A cautious portfolio seeks its returns primarily through income but has some opportunities for capital growth. It will mainly hold fixed income, or bonds, but may also hold equities, alternative investments and cash. From a risk perspective, it may suffer some short-term losses when financial markets are volatile but capital values are likely to be protected over the medium- to long-term.

As the name suggests, this type of portfolio is for investors with an aversion to risk.

2.    Income portfolio:

An income portfolio focuses on stocks paying out high dividends, as well as bonds with generous coupon payments. The UK is a fertile market for dividend-paying stocks, as many large UK companies pay higher dividend stocks than those in other countries. However, it’s important to weigh up the level of a company’s dividend yield against whether the dividend is likely to be maintained over years to come.

Naturally, investors seeking regular incomes, like retirees, favour this kind of portfolio.

3.    Balanced portfolio

A balanced portfolio gives up some of its potential future return for the comfort of knowing that it has less vulnerability to financial market downturns. Usually, this means that it holds well-established companies with fairly predictable growth trajectories. The portfolio might also be balanced with an allocation to bonds.

Traditionally, balanced portfolios have 60:40 allocations. That means 60% in equities and 40% in bonds. Theoretically, when equities fall in price, bonds rise, balancing out the overall performance. 

These portfolios are for people who want to take less risk than they would in a growth portfolio. 

4.    Growth portfolio

A growth portfolio aims to increase its value steadily over time. While it would typically include some of the high-growth tech and healthcare companies, it would also look for growing companies across a range of stock market sectors. This could include, for example, financial or consumer companies.

When professional portfolio managers run growth portfolios, they often look for high-quality growth stocks. These are companies with formidable competitive advantages, such as a strong brand or technology advantage, which means they can grow profitably for years to come.

 
Growth portfolios suit investors who want to save for long-term goals such as pensions or paying school fees.

5.    Dynamic portfolio

A dynamic portfolio aims for higher returns by taking greater risks. Stocks included in this type of portfolio are those that are growing fast and have the most volatility in their share prices. They would include technology companies that are quickly growing their profits. However, there are also companies in other growth sectors, such as healthcare.

Of course, from a risk perspective, many of these stocks have expensive valuations and room for disappointment. If they fail to grow as fast as expected, their prices can fall heavily.

How to build an investment portfolio?

Your investment portfolio should aim to maximise your investment returns within the investment goals that you have set yourself. For that reason, it’s important to build your portfolio methodically. You should use the following two steps.

Step 1: Select the type of investment portfolio.

Selecting from the types of portfolio listed above can help you (or your wealth manager) to make sure your portfolio has the appropriate mix of risk and potential reward. You can allocate to different types of stocks and asset classes accordingly. Ideally, you should plan your ideal asset allocation before buying any investments.

Step 2: Select the individual investments.

Once you've decided on your risk profile, it’s time to select the individual stocks, bonds and other investments that will turn plans into reality. There’s a growing range of investments that make implementing portfolios more efficient. For instance, ETFs (exchange-traded funds) are easily traded and can provide diversified exposure to types of investment. They could be a quick way of investing in anything from UK mid-sized stocks to the Indian stock market.

Analysis of market volatility and its effects on investments

Looking back through recent history gives a sense of how crises and economic downturns can trigger financial market volatility. Take 2020, when the Covid-19 pandemic swept across the world. During the calendar year, UK equities fell by 11.5%, according to the FTSE 100 Index.¹

This shows the vulnerability of investments to volatility. Typically, high risk shares in sectors such as technology would fall by more than the broad index, while bonds would decline by less.

Another year when UK shares performed poorly was 2018, when worries over the economy, Brexit and the US/China trade war knocked UK equities down by 8.7%.²

However, over the medium term these falls have tended to be superseded by gains. For instance, in the five years to 30 May 2025, UK equities as measured by the FTSE 100 rose by 73.8%.³

Adaptive strategies for high-net-worth portfolios in volatile times

Every episode of market volatility is different, so it’s hard to offer general guidelines about how high-net-worth portfolios should adapt. Generally, by the time volatility strikes, it’s too late to adjust a portfolio. If you’re not prepared to weather volatility, you should have a lower risk portfolio constructed to mitigate losses.

However, it all depends on what’s caused the volatility. Often financial markets overreact to negative news and this can provide a buying opportunity. 

The role of financial advisors during market swings

Financial advisors can be invaluable during periods of market volatility. They have the experience and resources to guide your reactions and offer you reassurance. If they are managing a discretionary portfolio for you, they will automatically take whatever action is needed.