How to Build Your Investment Portfolio from Scratch? A Practical Guide for Beginners

Many people have heard the phrase “Don’t put all your eggs in one basket,” but few truly understand the concept of an investment portfolio. Today, let’s discuss this essential topic often called a must-know course for investors.

What exactly is an Investment Portfolio? Why do you need it?

An investment portfolio is a collection of various financial assets held in certain proportions, including stocks, funds, bonds, bank deposits, cryptocurrencies, and more. Its core purpose is only twofold: maximize returns and minimize risks.

Imagine if all your savings are invested in a single stock. When that stock crashes, your entire investment could be wiped out. But if you diversify your funds across stocks, bonds, funds, and other assets, when one asset declines, others might stay stable or even rise, helping to hedge the risk.

This is why a portfolio is so important—it stabilizes returns through asset diversification. Just like a balanced diet provides essential nutrients, a diversified investment keeps your financial health in check.

The three main factors that determine your Portfolio allocation

Before building a portfolio, you need to recognize one fact: There is no perfect universal solution; only a configuration that suits you.

1. What is your risk preference?

This is the most critical factor. Some people are naturally risk-takers, others are conservative. Different risk preferences directly influence your portfolio structure.

Based on risk tolerance, investors generally fall into three categories:

Risk-loving: Willing to accept higher volatility for higher returns, suitable for young people. Typical allocation: 50% stocks, 30% funds, 15% bonds, 5% bank deposits.

Risk-neutral: Seeking a balance between risk and reward; this is the most common choice. Allocation: 35% stocks, 35% funds, 25% bonds, 5% bank deposits.

Risk-averse: Prioritize principal safety; more suitable for those nearing retirement. Allocation: 20% stocks, 40% funds, 35% bonds, 5% bank deposits.

2. Your current age and career stage

The younger you are, the stronger your risk resistance. A 28-year-old working professional, even if experiencing a 30% loss, has enough time to recover, so a more aggressive portfolio can be chosen.

For someone who is 65 and retired, future income opportunities are limited, and risk capacity is smaller, requiring a more conservative allocation.

3. Market environment and asset characteristics

The performance of the same asset class can vary greatly under different market conditions. For example, emerging market stock index funds are significantly riskier than those in developed markets—because emerging markets are more susceptible to geopolitical and economic policy uncertainties, and industry concentration is higher.

In contrast, companies in developed markets are more diversified and resilient. That’s why professional investors consider regional factors when configuring their portfolios.

How can beginners start building a Portfolio from scratch?

Step 1: Clarify your investment goals

Before taking action, ask yourself three questions:

1. What do I want to achieve through investing?

• Wealth growth: Set specific growth targets, like doubling in 5 years. Suitable for young, adventurous investors.
• Wealth preservation: Focus on beating inflation, with principal safety as the priority. Suitable for those with accumulated wealth or retirees.
• Cash flow needs: Require accessible funds at any time, suitable for entrepreneurs or freelancers.

2. How much loss can I tolerate?

This directly determines your portfolio’s risk level. It’s recommended to use online risk assessment questionnaires to scientifically evaluate your risk preference rather than relying on intuition.

3. How much capital do I have to invest?

This limits the types of assets you can choose. The good news is that the investment threshold is now very low— in Taiwan, funds can be purchased with as little as 3,000 NT dollars.

Step 2: Understand the characteristics of different assets

Before formal allocation, you should have a basic understanding of each asset class you select:

• Stocks: High risk, high return; volatile; suitable for medium to long-term holding.
• Funds: Diversified risk, good liquidity, friendly to beginners.
• Bonds: Lower risk, stable returns; suitable for conservative investors.
• Bank deposits: Safest but lowest yield; mainly used for emergency funds.

Step 3: Start configuring your Portfolio

Let’s look at a practical example:

Suppose Xiao A is a 28-year-old office worker with 1 million NT dollars

First step: assess—Xiao A is young, eager for wealth growth, with a risk-loving preference.

Second step: set a goal—double assets in 5 years to reach 2 million NT dollars.

Third step: choose assets—based on preferences, select stocks, ETF funds, and bank fixed deposits.

Fourth step: specific allocation:

• Stocks: 500,000 NT dollars (50%)
• Funds: 300,000 NT dollars (30%)
• Bank fixed deposit: 100,000 NT dollars (10%)
• Emergency fund: 100,000 NT dollars (10%)—this is very important; don’t invest everything.

Special reminder: Emergency funds are often overlooked but are crucial. Life always has unexpected situations requiring cash; pre-allocating can prevent forced selling at a loss.

After configuring, continuous adjustment is necessary

Many beginners think that once the portfolio is set, the job is done—that’s a fatal misconception.

Markets change, and your portfolio should adapt accordingly. When a certain asset class has surged beyond expectations, its proportion in the portfolio becomes unbalanced and needs rebalancing. For example, if funds originally at 30% grow to 40%, you should take some profits and readjust back to 30%.

It’s recommended to review your portfolio periodically (quarterly or semi-annually) and make minor adjustments based on market changes and personal circumstances.

Risks you may encounter in your Portfolio

1. Market risk: When the market enters a bear phase or black swan events occur, the entire portfolio may suffer losses.

2. Industry risk: Policy changes or negative news in a specific industry can impact related assets.

3. Inflation risk: If your portfolio’s returns don’t beat inflation, your purchasing power will decline.

4. Psychological risk: This is the most overlooked yet deadly risk. Panicking over short-term fluctuations and making frequent trades can lead to losses due to chasing gains and selling in panic.

How to hedge against these risks?

• Set stop-loss and take-profit points: Predefine target prices and loss limits to avoid emotional decisions.
• Diversify assets: Increase holdings in different asset types and regions to spread risk.
• Regular evaluation and adjustment: Flexibly adjust based on market environment and personal situation.
• Stay rational: Short-term volatility is normal; sticking to long-term plans is most important.

Common mistakes beginners make with their Portfolio

Mistake 1: “I have too little capital, so I can’t build a portfolio”

Wrong. As long as you meet the minimum purchase requirements for each asset, any amount can be allocated. Nowadays, tools like CFDs (Contracts for Difference) with low thresholds are available.

Mistake 2: “Once I set up my portfolio, I can automatically make money”

Building a portfolio is just to balance risk and reward; whether you profit depends on asset performance and market conditions. Regular observation, research, and adjustments are necessary.

Mistake 3: “I can directly copy someone else’s portfolio ratio”

Everyone’s age, income, and risk preference differ; someone else’s portfolio may not suit you. You can refer to it, but don’t copy blindly.

Mistake 4: “Once configured, I don’t need to manage it anymore”

This is the biggest misconception. Markets change, macroeconomic environments shift, and your life stage evolves. Your portfolio must be regularly reviewed and adjusted.

Summary

Building a suitable investment portfolio for yourself is simple in theory but complex in practice. The basic logic is clear: diversify risk, balance returns; the challenge lies in maintaining patience, rationality, and continuous learning over the long term.

Remember, a portfolio is not static; it should evolve like a living organism, adapting to market changes and your personal growth. Beginners shouldn’t obsess over perfect configuration; start by creating a basic framework aligned with your risk preference, then continuously optimize through practice—that’s the wisest approach.