How to Build a Balanced Growth Portfolio

In this series we look at some of the basic building blocks required to have a portfolio that can offer good returns and meet your investment requirements. How you go about compiling a share portfolio that matches these aims is the rub of building a balanced portfolio as only you can decide what you consider balanced.  

Why we buy shares

Generally most people buy shares for the following reasons:

• They are looking for growth in their investment.

• They are looking for extra income, or

• They want the perks owning a particular share offers.

For some people it’s just one reason to buy or it can be a combination or sometimes all three.  

Mix and match building blocks

You can have many elements in building up a portfolio of shares including:

• Blue chips – solid large well known companies, but often limited growth potential, but good for income and perks.

• Tax efficient investing – using a Self Select ISA to minimise Capital Gains Tax and maximising growth but also income without tax.

• Long term pension investing – using a SIPP to access tax incentives.

• Growth shares – investing in smaller companies with large growth potential, but the downside is increased risk of loss if the companies don’t succeed.

• Unquoted shares – getting involved in a business before it lists on the stock exchange – very high growth potential but also larger risk. How and why you use these blocks forms the basic shape your investment portfolio will take – your risk make-up therefore dictates largely what you invest in. 

What’s your risk make-up?

We all have differing views on where our money should rest. The defining factor of this is our appetite for risk. Depending on how much risk you are happy to undertake can have a dramatic effect on the growth potential of your investments.  

High growth potential

Most potential growth investment opportunities are true to the maxim that the earlier you get in the more you could realise. Yet, as with all opportunities ‘caveat emptor’ – buyer beware, is true.  

Get in early

A classic example of the need to get in early to maximise a growth investment strategy was the ‘Dot com’ boom. In the late 1990’s small high tech companies were signalled as the big business of the future and investors piled in sending the shares ever higher.

The problem with this was that these companies had not actually made any money yet – they were the shares equivalent of ‘Tomorrow’s World’, the TV programme which was famous for showing things that never came to pass. However, this was fine if you had got in early, saw the impending disaster and took the profit!  

Take Profits - Don’t be shy and don’t be greedy!

There is another old stock market saying; “You are never wrong to take a profit.”  

Balance through diversification

Investing in higher risk start-up companies such as those on AIM and PLUS Markets are naturally more volatile and investors understand this. To run a balanced portfolio you must be prepared to take profits and losses but also do your research and diversify your risk via buying different sectors of business.  

Spot the racehorses and avoid the donkeys

Investing in higher risk companies can be a difficult place for investors. However, our view has always been that we want to open the door for you to growth investment opportunities early on and let you have as fair a crack of the whip as the big boys do. Our website is one of the few on the internet that provides you with free access to our research on smaller cap companies.