How to Build a Personal Investment Portfolio? A Beginner's Guide to Asset Allocation

Many people are deterred from investing mainly because they don’t know how to get started. In fact, building a personal investment portfolio is not complicated; as long as you understand a few core principles, beginners can easily get started.

What exactly is a personal investment portfolio?

Simply put, a personal investment portfolio is a collection of various financial assets you hold simultaneously in certain proportions. These assets include stocks, funds, bonds, bank deposits, and even cryptocurrencies. The main purpose of creating such a portfolio is to balance risk and return through asset diversification.

Imagine if you invest all your money in a single stock—if that stock drops, your losses could be severe. But if your money is allocated across stocks, funds, bonds, and other assets, even if one declines, the gains from others might offset the losses. That’s the beauty of a personal investment portfolio.

In short, building a personal investment portfolio is like ensuring nutritional balance when eating—diversification is key. Healthy financial growth should be steady and progressive, not subject to extreme fluctuations.

What factors influence your investment decisions?

When constructing a personal investment portfolio, not everyone should have the same allocation proportions. Your final plan will be affected by several important factors.

The first consideration: How much risk can you tolerate?

Different people have different attitudes toward risk. Some are bold and pursue high returns, willing to accept potential losses; others are more conservative, preferring to protect their principal even if it means lower gains. These attitudes ultimately determine whether you are a risk-loving, risk-neutral, or risk-averse investor.

Risk preference directly influences the proportions of various assets in your portfolio. If you are risk-tolerant, you might allocate more to stocks and funds; if risk-averse, you might favor bonds and bank deposits.

The second consideration: How old are you?

Age is a critical variable. A 28-year-old working professional and a 65-year-old retiree will have completely different suitable portfolio allocations.

Young people have the advantage of time. Even if they suffer a 30% loss in a year, they still have over 20 years to work and earn back the loss. Therefore, young investors can adopt more aggressive strategies, allocating more to high-risk, high-reward assets.

Retirees, lacking employment income, cannot rely on time to recover losses, so they need more conservative strategies focused on protecting existing assets.

The third consideration: The characteristics of the assets themselves and the market environment

This is often overlooked. Even within the same asset class, different types vary greatly. For example, mutual funds—money market funds have low volatility and high liquidity but limited returns; index funds tend to have higher risk and higher returns.

Moreover, the performance of the same asset class can differ significantly across market environments. Emerging market stock index funds are riskier than those in developed markets because emerging markets are more sensitive to geopolitical and economic fluctuations. Data from 2017 to 2020 shows that emerging market ETFs (EEM.US) and Eurozone ETFs (EZU.US) both rose during bull markets, with emerging markets gaining more. However, during the bear market from 2020 to 2022, EEM fell by 15.5%, far more than EZU’s 5.8% decline, illustrating this point.

What are the standard allocation schemes for personal investment portfolios?

Based on different risk preferences, personal portfolios can be broadly divided into three types. These schemes consider the balance between risk and return:

Risk-loving: Stocks 50%, Funds 30%, Bonds 15%, Bank deposits 5%
Suitable for investors willing to accept larger fluctuations, aiming for relatively higher long-term returns.

Risk-neutral: Stocks 35%, Funds 35%, Bonds 25%, Bank deposits 5%
A more balanced approach, with moderate risk and return levels.

Risk-averse: Stocks 20%, Funds 40%, Bonds 35%, Bank deposits 5%
Emphasizes stability, suitable for investors prioritizing capital safety.

If your risk tolerance is particularly high, you can allocate an additional $100–$200 from the above schemes to higher-risk instruments like forex or cryptocurrencies.

Besides cross-asset allocation, you can also further subdivide within the same asset class. For example, a fund-focused portfolio could be allocated as:

Risk-loving fund portfolio: Stock funds 60%, Bond funds 30%, Commodity funds 10%
Risk-neutral fund portfolio: Stock funds 40%, Bond funds 40%, Commodity funds 20%
Risk-averse fund portfolio: Stock funds 20%, Bond funds 60%, Commodity funds 20%

Remember a fundamental investment rule: never “put all your eggs in one basket.” An all-in strategy is a big no-no.

How should beginners step-by-step build their personal investment portfolios?

Step 1: Understand your risk tolerance

This is the most basic step. There are many online risk preference questionnaires. By answering a series of questions, you can determine what type of investor you are. This step cannot be skipped, as it directly affects all subsequent allocation decisions.

Step 2: Clarify your investment goals

Investment goals are generally categorized as:

Wealth growth: Set specific targets, e.g., doubling assets in 5 years. Suitable for young, risk-tolerant individuals.

Wealth preservation: Focus on capital protection and beating inflation. Suitable for those satisfied with current assets or already retired.

Cash flow sufficiency: Emphasize liquidity and accessibility, often through savings accounts. Suitable for entrepreneurs and those needing flexible funds.

Step 3: Research the characteristics of different assets

Before starting, gain a basic understanding of your chosen assets. Stocks, funds, bonds, bank deposits—each has different risks, returns, and liquidity. This knowledge will help you make smarter choices.

Step 4: Allocate your personal investment portfolio

Let’s illustrate the entire process with a practical example.

Suppose Xiao A is a 28-year-old office worker with NT$1,000,000 and wants to start investing.

Analyze risk preference: Young and eager for more wealth, risk-loving.

Define investment goal: Grow NT$1,000,000 to NT$2,000,000 in 5 years, a 100% increase.

Choose asset classes: Stocks, ETFs, and bank deposits.

Based on these decisions, Xiao A’s specific allocation plan is:

A key reminder: always reserve an emergency fund when building your portfolio to handle unexpected life events.

After initial setup, regularly (e.g., quarterly or semi-annually) review and adjust the portfolio based on market changes and personal circumstances. Markets evolve, and so do your life stages; your investment portfolio should adapt accordingly.

What should you pay attention to after configuring your personal investment portfolio?

Recognize potential risks

First, be mentally prepared: personal portfolios do not guarantee profits and can incur losses. Diversification reduces individual asset risk but cannot eliminate market risk entirely. During economic crises or black swan events, the entire market can be affected.

Besides market risk, you may face industry risk, inflation risk, interest rate risk, etc. Additionally, there is a risk from your own behavior—emotional and psychological risks. Losing control of emotions or being driven by fear often leads to worse decisions than market fluctuations.

Practical methods to reduce risks

Set stop-loss and take-profit points: Predefine target prices; during market volatility, these preset points help avoid excessive losses.

Maintain diversification: Invest in different asset types and regions to reduce the impact of single-market or sector swings. This is the core value of a personal portfolio.

Regularly review and rebalance: Adjust your portfolio periodically based on market changes and personal circumstances. Even if your initial allocation was perfect, ongoing adjustments are necessary to maintain balance.

Stay rational: Short-term fluctuations are normal. Don’t panic during a month of decline; trust your long-term plan.

Emotional management is equally important

After setting up your portfolio, your knowledge is crucial, but emotional control is equally vital. Being able to stay calm during market panic and not overly optimistic during rapid gains often determines your ultimate investment success.

Frequently Asked Questions

Q: Can I build a portfolio with little capital?
A: Absolutely. It depends on the minimum investment thresholds of different assets. Some funds in Taiwan require only NT$3,000 to start; CFDs have even lower barriers, making them suitable for small investors to build a portfolio.

Q: Will I definitely make money after setting up a portfolio?
A: Not necessarily. A personal portfolio is a tool to balance risk and return. Achieving wealth growth also depends on market conditions and correct asset judgment. Regular monitoring and adjustments are needed.

Q: How much knowledge do I need to set up a portfolio?
A: Mainly a basic understanding of the chosen asset classes, their prospects, trading timing, and financial fundamentals, along with developing analytical skills.

Q: Can I refer to others’ schemes if I don’t know how to allocate?
A: You can refer to portfolios similar to your investment goals, but it’s best to consult a financial advisor for a tailored plan based on your specific situation.

Q: Once set up, can I just leave it alone?
A: No. Personal portfolios require regular evaluation and adjustment. Market environments change, and the outlook for assets can shift suddenly. It’s recommended to review at least every six months.

In summary, establishing a personal investment portfolio is something every rational investor should do. It’s not just an asset allocation plan but a way of thinking about financial planning. Starting from assessing your risk tolerance, clarifying your goals, and continuously adjusting based on market changes, it’s a continuous process. The key is to take action—because time itself is the most valuable asset in investing.