Last updated 05:14, Friday, 31 October 2008

There are many questions that people ask about investments portfolios such as:

A helping hand: Every investment presents an element of risk, even deposit accounts, as we have seen lately with some banks in trouble. This risk needs to be managed and monitored in a sensible way

What makes a good investment portfolio?

Why should I bother?

How will I benefit?

Firstly, a good investment portfolio is made up of many different components.

For example, what makes a good house? The walls, the location, the roof?

Well, all of these parts are needed and similarly a good mix of assets is required to make a sturdy investment portfolio.

However, it’s also very important to make sure you choose the right builder for your house and when it comes to an investment portfolio I would strongly recommend that you seek impartial independent advice.

The main assets used to construct an investment portfolio are cash, property, fixed interest investments such as bonds and gilts and shares.

Each of these different types of asset has its own advantages and disadvantages. Within a portfolio the key is to have the right mix of assets for your situation to make sure the investment portfolio matches your feelings about risk versus reward.

As with most things, everybody’s different, so people have different goals and requirements for their investment portfolios. It’s vital to make sure your investment portfolio is designed to meet your specific needs and goals.

Why should people bother with an investment portfolio?

Every investment presents an element of risk, even deposit accounts, as we have seen lately with some banks in trouble. This risk needs to be managed and monitored in a sensible way.

If you have only one type of asset then you’re exposing yourself solely to the performance of one area. If you have two types of assets then you are exposing yourself to the performance of two areas and so on.

As a simple example, if you owned two companies, one selling ice creams and the other selling umbrellas, then on a sunny day the ice creams will do well, but you don’t have to worry if it rains as the umbrella sales will increase.

Obviously, the risk would be greater if you only had the company selling umbrellas and it turned out to be sunny.

Surely, then, it’s sensible with an investment portfolio to manage the risk and to have different assets so you’re not overly exposed to one area.

How can you benefit from an investment portfolio?

If designed correctly then over time an investment portfolio should give you returns in excess of cash deposits while reducing the risk of holding just one type of asset.

The important thing with investment portfolios is not to expect them to look after themselves. Also, you must appreciate there will be times when they fall as well as rise in value – this is the very nature of investments.

Like most things in life they need to be looked after to make sure they are still on track to meet your original goals, or updated if your goals change.

Furthermore, if they are regularly reviewed then this puts your investment portfolio in a good position to benefit from any future increases in asset values.

For advice on Investment Portfolios call freephone 0800 195 2161 or email moneymatters@armstrongwatson.co.uk