Creating an investment portfolio

Hello and welcome to the fourth instalment in our series of Legal & General Investments master class videos.

In this episode, we will be looking at the key things to consider when deciding if and how to create an investment portfolio.

So what is an investment portfolio? Well, an investment portfolio is a basket or mix of investments.

With a portfolio, instead of investing in just one stocks and shares fund, you have the opportunity to spread your investments.

It’s all about spreading risk.

If you diversify your portfolio, your investment performance should fluctuate less because losses from some investments may be offset by gains in others. Therefore, you should have less risk than if you put all your money in one type of investment, such as stocks and shares.

When planning an investment portfolio, you will have to consider how you split your investments between cash, bonds and stocks and shares or any other assets you choose to invest in.

The exact proportions of your portfolio make-up will depend on your investment timeframe horizon and your attitude to risk. Here’s an example: a young man saving for the long term and prepared to tolerate market fluctuations will probably have more of his portfolio in riskier stocks and shares than a risk-averse 60 year old who plans to retire soon. It really boils down to how long you’re prepared to wait in seeing out any short term changes in the market.

As discussed in episode two, a key consideration when investing in general, and when creating a portfolio specifically, is to work out whether you’d like income from your investments or are going for long-term growth.

As a rule of thumb, bonds are better for income – each bond pays an income each year – while shares are better for growth. But even here there are variations.  

Some shares – and funds that invest in shares – have a strong growth profile: think smaller dynamic companies, especially those involved in technology.  

Other shares suit income-seekers. These tend to be big, solid corporations with a long track record of rising dividends. Equity income funds, which spread the risk among 50 or more companies, tend to be very popular. You’ll need to look at each fund to check what it’s investing in, and to get the balance right for your needs.

Before we end the video, let’s quickly recap the three main areas we have covered off in this episode:

When creating an investment portfolio, diversification is good; it helps you spread risk and ensures all your eggs aren’t in one basket.

When creating an investment portfolio, it is important you consider how you will split your investments between assets like cash, bonds and shares.

Before you start to create an investment portfolio, it is important to work out if you are investing for regular income or long-term growth in full.

Thank you for watching this Legal & General Investments Master Class Video.

In the next and final episode in our investment master-class series we will be looking specifically at a range of Legal & General Investments products, discussing how they work, and why they might be your ticket to securing a better and brighter investing future.

In the meantime, if you’d like to take a look at our range of stocks and shares ISAs, please visit our website.

All investments carry an element of risk. Please bear in mind:

• The value of your investment may fall as well as rise and you might not get back your original investment.
• If you choose an investment fund which invests overseas, changes in exchange rates between currencies may cause the value of your investment and the level of income to fall as well as rise.
• The tax efficiency of ISAs is based on current rules. The current tax situation may not be maintained and the value of the tax treatment depends on individual circumstances.
• These investments are medium to long term, ideally five years or more

Find out more about Legal & General investments.