What Does A Good Investment Portfolio Look Like?

Tricky question! Millions of investment portfolios out there are constantly being rebalanced and all this Buy & Sell activity does move the markets, and the bigger the portfolio, the greater the impact on the market. So what is a good investment portfolio like? Why are there millions of portfolios, can we not just build one and stick with it?

If you are in your 20s there are good chances that your investment portfolio will be much much much different than the typical investment portfolio of an old couple nearing retirement.

That is obvious, The key reason is that each of us has specific objectives and constrains, as well as individual considerations. Where:

1. Objectives are Risk and Returns

2. Constrains are Liquidity and Time

3. Individual considerations are Tax, Regulatory, and Unique

Before you start building your portfolio you should define what each of the above are. Also, note that they will keep changing as time goes by. That's why reviewing your portfolio strategy every 3-5 years is paramount. If you are disciplined enough to do it on your own that's great, otherwise seek help from a friend or personal advisor or seek help here.

So, what does a typical portfolio look like. Imagining you are an individual named Alex in your mid 20s and are based in Europe, with the following characteristics:

• Money pot: €50,000

• Return goal: 10% per annum

• Risk budget: 10% per annum

• Liquidity: Do not need this pot of money for the next 25 years

• Time: 25 years

• Tax: standard tax bracket

• Regulatory: 15% tax relief on investments held for more than 3 years

• Unique: want to achieve financial independence by age of 50 (e.g. 25 year from now) + do not want to invest into Oil&Gas and Alcohol stocks + want to maintain an investment bias (>30%) into Tech stocks.

The above list is commonly referred to as IPS, Investment Policy Statement, which is an important document that work as a compass until your target is achieved. If, in 5 years time, the above plan starts to clash with life events, it will be time to reassess and re-design the all thing again. This is common, and should be part of the game.

Given the above IPS, the portfolio could look like:

• International Equities (40%, or €20,000)

• US Equities (30%, or €15,000)

• Alternatives (10%, or €5,000)

• Fixed Income (10%, or €5,000)

• Cryptocurrencies (5%, or €2,500)

• Derivatives (3%, or €1,500)

• Cash (2%, or €1,000)

If you observe this is a portfolio with a growth bias (opposite to a portfolio with a preservation of capital bias). The biggest bulk of the money pot has gone into Equities (70%) which are risky. In this particular example Alex is very young with lots of time ahead, so he can withstand periods of volatility without too much issues and stress. He is also free from any commitments (no house to buy, no big expenses planned) so he can think long term and enjoy the journey to a greater wealth.

Please note that Alex, as a proper investor, would still continue to commit money every month/year on a consistent basis.

Continuing on the example above and imagining that Alex does not commit any more money into his portfolio and is able to achieve the target 10% return, he would end up with €541,000 by age 50, which is a nice pot that gives you some possibilities.

On top of this extraordinary financial outcome, Alex would be likely to earn more over time either from his salary or a side hustle and enjoy the lifestyle that he wants even without committing more money to his portfolio. Conversely if he wants to make new contributions to his portfolio on a monthly/yearly basis, the final pot by age of 50 will be much more juicy :)

Now, what are you waiting. The earlier you start, the BETTER.