How to build a balanced portfolio to withstand shocks

There is plenty of news that risks unnerving the markets, as recent events have demonstrated amid the coronavirus outbreak. Uncertainty and what will happen to the economy over the months ahead will likely cause more wobbles.

The best way to protect yourself is to ensure you have a carefully constructed portfolio with the potential to weather any stock market shocks over the long term.

Here are some considerations to get started.

The basics

The right investment balance within your portfolio will depend on your goals, age, and attitude to risk.

If you are approaching or in retirement, for example, you may favour safer investments like cash and fixed-interest investments as you will not have much time to make up for any losses during turbulent periods. Younger investors, however, may want to opt for a more adventurous approach, with a bigger chunk of their money in shares and perhaps in more volatile sectors such as emerging markets.

Building a portfolio

Here are some important considerations:

• Think about your goals, and whether you are saving for the short, medium, or long term – ideally, you want to invest over a long time horizon;
• Accept that the value of any investments may rise and fall – any investment carries some risk, but shares have typically outperformed cash over the long term and weathered plenty of shocks;
• Make sure your investments are in line with your attitude to risk.

Diversifying your investments

Whatever your approach to risk, it is generally considered wise to ensure you are not relying on one type of investment for returns within your investment portfolio. By diversifying, or spreading your investments, you can reduce volatility, which is an inevitable and inescapable part of investment, and you may protect your portfolio.

This means creating a balance of assets, including cash, fixed-interest investments such as corporate bonds and gilts, and shares. The idea is that if one part of your portfolio isn’t performing well during current circumstances, the other investments may compensate for losses and smooth overall performance.

Broadening your approach

Even within different asset classes you can still look at diversifying further, such as by including international exposure.

If you are seeking income from your investments you can broaden your search, too. Historically, fixed interest has been favoured for income, but investors can also look to property, infrastructure, and some private equity firms.

Of course, there are no guarantees of returns whenever you invest. However, over time, a balanced, broadly diversified portfolio should be well-placed to weather storms.

Finding help

Deciding where to invest to create a robust investment portfolio can seem a daunting prospect, particularly when markets are volatile. But there are ways to mitigate risk and make the process as stress free and simple as possible.

A wealth manager can structure a balanced portfolio tailored to meet your individual needs, whether you want to grow money over time, or produce an income. Plenty offer ready-made investment portfolios which you can choose from, depending on your personal needs and risk profile. This way, you know you have a balanced portfolio without having to do the hard work yourself.

The value of your investment may go down as well as up.
Past performance is not reliable guide to future.
You may lose some or all of the money you invest.
Our investment may be affected by changes in currency.
Any income you get from this investment my go down as well as up.
Tax treatment depends on your individual circumstances; therefore you should not rely on this information without seeking professional advice from a qualified tax adviser.