Portfolio Basics: How to Build an Investment Portfolio

What should be in your investment portfolio?

The specifics will depend on several factors, such as your goals, time horizon, and risk tolerance. But overall, investors can benefit from strong diversification—that is, spreading your money across multiple types of investments. Because different investments tend to do well at different times, having a mix will help smooth out returns in the long run.

As you work toward a well-diversified portfolio, you can use Morningstar Categories to better understand the different types of investments. And you can use my Role in Portfolio framework to determine how these investments can fit in your portfolio and best support your goals.

We’ve compiled this series on portfolio basics to unpack these resources and explain how investors can put this information to use.

What to Know About Morningstar Categories

Morningstar Categories help sort investments by factors such as sector exposure, geographic region, or asset allocation. This system can help you search for investments that suit your needs since the groupings offer a better sense of each investment’s risk, return, and behavioral profile.

In the United States, Morningstar supports about 130 total categories that map into nine category groups: U.S. equity, sector equity, international equity, taxable bond, municipal bond, alternatives, commodities, money market, and miscellaneous.

In the articles below, we detail some of the larger, more popular categories that are widely used by investors. We discuss considerations, such as the advantages and risks of each category, when each one tends to perform best, and how the various categories can complement each other.

What to Consider When Making Investment Choices

The record number of available investment options can mean more opportunities for investors—but it can also make investment decisions more overwhelming than ever. We’ve created the Role in Portfolio framework to remedy this problem and help investors understand how they can use funds most effectively.

When considering a potential investment, we recommend you consider these questions:

• What is the appropriate time horizon, or holding period, for keeping this fund?
• What percentage of my portfolio should I allocate to this fund?

By matching a fund’s recommended minimum holding period with the expected time horizon for holding it, you can use your investments more effectively and reduce the risk of not having enough assets available to meet your various goals.

Maintaining Your Investment Portfolio: More Resources

We’ve also explored how investors can navigate different market environments, individual changes, and other investing questions.

Here are some resources you may find useful throughout your investing journey.

This article was compiled by Emelia Fredlick.