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Building a balanced portfolio

Building a balanced investment portfolio is key to smoothing out the ups and downs of the stock market, and ensuring that your long-term goals stay on track. Quick reminder: your portfolio (in investing terms) refers to all the different investment assets you own — stocks, bonds, ETFs, commodities etc. 

Spreading your investments between different assets can help mitigate against overexposure, if the price of a particular asset class suffers a downturn. 

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Focus on your financial goals first

Grounding your investment choices in your goals is a great way to get the most out of your portfolio. Whatever you’re investing in, it’s good to have an idea of why you chose a particular investment and what purpose it serves. 

Investing is best suited to those long-term goals — the outdoor office, that pricey furniture making course, Wimbledon final tickets — turning those big spends that feel out of reach now into your new standard of living. 

A balanced portfolio aims to give investors steadier, long-term growth, as mitigating risk between different assets has historically provided positive returns over a longer period of time. 
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See our guide on retirement and long-term investing. You can track your goals and seamlessly link them to an investing account in the Chip app. 

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Assessing your investing risk tolerance

Determining your risk tolerance is key to balancing your portfolio. If you have a longer time horizon to invest, you may be able to tolerate some more risk, as historically markets have always trended upwards over time. 

If you’re approaching retirement, your risk tolerance may be lower as you get closer to your target date. Some investors choose to allocate a greater portion of lower-risk assets like bonds or cash equivalents, with the aim of preserving capital.

On the other hand, those with more than ten years to stay invested, may take more risk; aiming for greater long-term growth despite short-term volatility. The right balance depends on your comfort with potential losses, your financial situation, and how long you plan to keep your money in the market.
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See our guide on risk, return and investing strategies for a deeper dive.

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Understanding asset allocation

Asset allocation is simply how you split your investments between different types of assets — like stocks, bonds, property, or commodities. Each type behaves differently over time.
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• Stocks can offer higher growth potential, but also come with bigger price swings.
  
  
• Bonds usually provide lower, steadier returns and can act as a buffer during market downturns.
  
  
• Cash equivalents (like savings accounts) are the safest, but offer the lowest returns.
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• Alternative assets (like gold or real estate) can add extra diversification.
  
  

Your mix of these assets should reflect both your goals and your risk tolerance. Someone with decades before retirement might have a higher proportion of stocks, while someone nearing retirement might hold more bonds and cash.

See our guide on asset classes for more details.

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Diversification

Diversification means not putting all your eggs in one basket. By spreading investments across different asset types, industries, and countries, you reduce the impact of poor performing funds dragging down your whole portfolio.

For example, if tech stocks are having a bad year, gains from bonds or commodities could help cushion the blow. A well-diversified portfolio aims to smooth out returns and make the ride less bumpy over the long term.

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Rebalance your portfolio regularly

Over time, some investments will grow faster than others, changing your original asset allocation. This “drift” can increase your risk without you realising it.

Rebalancing means checking your portfolio regularly, every six months or so, and moving money between assets to get back to your target allocation. It’s like course-correcting on a long journey to make sure you stay headed towards your goals. 

We have a whole series dedicated to various investment strategies that can help you stay on track.

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How to build a balanced portfolio summary

Balancing your portfolio starts with knowing your goals, understanding your risk tolerance, and picking an asset allocation that fits both. From there, diversifying and rebalancing are key to managing risk and keeping your plan on track.
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Next up in this series: What is asset allocation and why it matters.

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When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than your original investment. Chip does not offer financial advice and this should not be considered as a personal recommendation.