## Beginner's Must-Know: How to Scientifically Build Your Investment Portfolio

Many people have heard the phrase "Don't put all your eggs in one basket," but few truly understand how to diversify their investments. Today, let's talk about investment portfolios, especially how beginners should set one up.

## What exactly is an investment portfolio?

Simply put, an investment portfolio is: holding multiple financial assets such as stocks, funds, bonds, and bank deposits in certain proportions, aiming to balance risk and return through diversification.

This concept is easy to understand—just like your diet shouldn't consist of only one type of food, your investments should be diversified. Someone might ask why do this? Because it helps ensure your financial health. A stable-growing portfolio won't wipe out your entire savings if one industry crashes.

For example, your portfolio might include high-risk, high-return assets (stocks, cryptocurrencies, futures) as well as stable, low-risk assets (bonds, funds, bank deposits). Even if some investments fluctuate, the overall portfolio can stay balanced.

## The three main factors influencing your portfolio allocation

### Risk preference determines asset proportions

Different people have very different attitudes toward risk. Some are naturally risk-takers, some are conservative, and others are in between. This directly affects the proportions of various assets in your portfolio. Generally, there are three types:

**Risk-loving**: Accept large fluctuations, pursue high returns
**Risk-neutral**: Want growth but don't want too much hassle
**Risk-averse**: Prioritize stability, willing to accept lower gains

### Age is a key variable

A 28-year-old and a 68-year-old should have completely different portfolios.

Young people have plenty of time to recover, so even if they lose 30% this year, they can make it back through work. Therefore, they can choose higher-risk allocations, increasing stocks and cryptocurrencies.

But retirees have no future income, so losses mean a lower standard of living. They must prioritize capital preservation, with higher proportions of bonds and bank deposits.

### Market environment and asset characteristics affect actual performance

The same type of fund can have very different risks—money market funds are stable but offer low returns, index funds are riskier but have greater opportunities.

Looking at stock index funds, emerging markets are clearly riskier than developed markets. This is because emerging markets are more affected by geopolitical issues, economic policies, and tend to have more concentrated industries (resources, energy, raw materials), making them more vulnerable to international shocks. Developed markets have more diversified companies and stronger risk resistance.

Data comparison clearly illustrates this—between 2020-2022, ETFs in emerging markets declined by 15.5%, while Eurozone ETFs only fell by 5.8%. This reflects differences in market environments.

## Three common investment portfolio allocation schemes

Based on risk preferences, there are three relatively standard portfolio configurations:

**Risk-tolerant investors**
Stocks 50%, Funds 30%, Bonds 15%, Bank deposits 5%

This setup pursues growth, suitable for young people with stable income. Stocks dominate to maximize gains during market upswings.

**Moderate investors**
Stocks 35%, Funds 35%, Bonds 25%, Bank deposits 5%

A balanced approach, with moderate risk and return, suitable for most working professionals.

**Conservative investors**
Stocks 20%, Funds 40%, Bonds 35%, Bank deposits 5%

Prioritizes stability, ideal for those nearing retirement or unable to tolerate large fluctuations.

If you want to try higher-risk instruments (like forex or cryptocurrencies), you can allocate $100–200 (the maximum loss you can bear) from the above schemes for testing, but never use essential living funds.

## How should beginners build their own portfolio?

### Step 1: Understand your risk tolerance

There are many online risk preference tests that evaluate which type you belong to through a series of questions. This isn't to lock in your lifelong risk level but to give you a clear understanding of your attitude.

### Step 2: Clarify your investment goals

Goals are generally divided into three types:

**Wealth growth**: Set specific targets, e.g., double in 5 years. Suitable for young and adventurous investors.

**Wealth preservation**: Focus on beating inflation and maintaining current purchasing power. Suitable for those satisfied with current wealth or already retired.

**Cash flow sufficiency**: Prioritize liquidity, mainly using savings accounts. Suitable for entrepreneurs or those needing flexible funds.

### Step 3: Choose specific asset classes

Before configuring your portfolio, you must understand the basics of the assets you select. Know the risk levels and potential returns of stocks, funds, bonds, and bank deposits. You don't need to be an expert, but at least have a general idea.

### Step 4: Practical allocation example

Suppose you're a 28-year-old office worker with NT$1,000,000. How would you allocate?

**Your situation**: Young, stable income, eager for wealth growth → risk-loving
**Specific goal**: Achieve 100% growth in 5 years, reaching NT$2,000,000
**Asset choices**: Stocks, ETF funds, bank deposits

**Specific allocation**:
- Stocks: NT$500,000 (50%)
- Funds: NT$300,000 (30%)
- Bank deposits: NT$100,000 (10%)
- Emergency funds: NT$100,000 (to handle unexpected needs)

This distribution balances growth pursuit with a buffer. If unexpected expenses (medical, family emergencies) arise, you won't need to touch your investments.

## What to do after configuring your portfolio?

### Risk management

Portfolio allocation can reduce risk but not eliminate it entirely. Market fluctuations, economic crises, and black swan events can still impact your portfolio. Besides market risks, there are industry risks, inflation risks, interest rate risks, etc.

A more challenging risk is your own mindset—panic at short-term losses, chasing gains and selling at lows, which can ruin your well-structured portfolio.

### Specific strategies

**Set stop-loss and take-profit points**: Predefine target prices to prevent impulsive decisions during market volatility.

**Diversify assets and regions**: Not only diversify asset types but also geographically. This way, risks from a single market or industry won't affect you entirely.

**Regular review and adjustment**: Your portfolio isn't set-and-forget. Markets change, and so do your life circumstances. Regularly assess whether your current allocation still fits.

**Stay rational**: Short-term fluctuations are normal. The key is not to panic. Stick to your long-term plan and avoid frequent trading.

## Common questions and answers

**Q: Can I build a portfolio with little funds?**
A: Absolutely. Funds and bonds have low minimums; in Taiwan, some funds can be bought with NT$3,000. Low barriers are no reason to avoid diversification.

**Q: Will I definitely make money if I configure my portfolio?**
A: Not necessarily. A portfolio balances risk and return; whether you profit depends on market conditions and your asset choices. Regular monitoring and optimization are needed.

**Q: What knowledge do I need to set up a portfolio?**
A: Mainly understanding the basics of the assets you choose—know their outlook, buy/sell timing, etc. You don't need to be an expert but should have basic judgment skills.

**Q: Can I copy someone else's portfolio exactly?**
A: You can use similar risk-profile portfolios as references, but it's best to adjust based on your specific situation. Consulting a financial advisor for professional planning is also recommended.

**Q: After setting up my portfolio, can I just leave it alone?**
A: No. Regular evaluation and adjustment are necessary. Assets that performed well initially might deteriorate due to market changes, requiring rebalancing. A portfolio is dynamic, not static.

In summary, scientifically configuring your investment portfolio requires not only knowledge but also emotional discipline. Have a clear plan, stay flexible amid changes, and this will help your assets grow steadily rather than drifting aimlessly.