How can you effectively manage your asset allocation? You need to master this portfolio investment guide.

Starting with a Real Case

Xiao A is 28 years old, has saved 1 million New Taiwan Dollars, and aims to double it to 2 million within 5 years. This goal sounds ambitious, but with a scientific methodology, it can be achieved—namely, building an investment portfolio.

Instead of putting all your money into a single asset (which is the classic “eggs in one basket” trap), Xiao A chooses a smarter approach: 50% in stocks, 30% in funds, 10% in fixed deposits, and the remaining 10% as emergency funds. This portfolio allocation maintains growth potential while reducing risk exposure.

The logic behind this diversified allocation is simple: when one market declines, other assets may remain stable, balancing overall volatility. It’s like a balanced diet—you shouldn’t eat only proteins or only carbohydrates.

What Exactly Is an Investment Portfolio?

An investment portfolio (Investment Portfolio) is essentially: a collection of multiple financial assets held simultaneously in certain proportions. These assets include stocks, funds, bonds, bank deposits, cryptocurrencies, and more.

Why not “all in” on a single asset? Because concentrating risk in one asset can lead to catastrophic losses if a black swan event occurs. The core value of a portfolio is to maximize returns and minimize risks through the complementarity of assets.

Healthy financial growth should be steady and progressive, not highly volatile. A well-designed investment portfolio includes:

• High-yield, high-risk assets: stocks, Bitcoin, forex, etc. (for growth)
• Moderate-risk assets: various funds, ETFs, etc. (for balance and buffer)
• Low-risk, stable assets: bonds, bank deposits, etc. (for safety cushion)

Three Core Factors That Determine How to Allocate Your Portfolio

Not all portfolios are the same. Your investment portfolio should be tailored to your personal situation, mainly influenced by three factors:

1. Your attitude toward risk (risk preference)

This is the most subjective factor. Some people are naturally risk-takers, others are conservative. It directly affects your allocation to risk assets.

Risk preference is usually categorized into three types:

• Aggressive: willing to tolerate large fluctuations for higher returns, favoring high-risk assets
• Balanced: neither too aggressive nor too conservative, balancing risk and reward
• Conservative: prioritizes principal safety, willing to accept lower returns to reduce volatility

2. The hidden factor: age

Age directly determines your risk tolerance. A 28-year-old working professional and a 65-year-old retiree should have very different portfolio allocations.

Advantages of young investors:

• Steady income, able to continuously add to principal
• Even if a single investment loses 30%, there are 30 years to recover
• Can tolerate high volatility for high growth

Considerations for retirees:

• No additional income, principal is the last line of defense
• Need a portfolio that generates stable cash flow to support living expenses
• Significantly lower risk tolerance

3. Market performance of different assets (market environment)

Even similar assets perform very differently under different market conditions.

For example, funds:

• Money market funds are highly liquid but offer low returns, with low volatility
• Stock funds have higher returns but more volatility

For stock index funds:

• Emerging market ETFs: heavily influenced by geopolitical and economic policies, with volatility of 15-20%
• Developed market ETFs: diversified across industries, with typical volatility of 5-10%

Comparing 2017-2020 to 2020-2022 shows that emerging markets lead during boom periods but suffer the deepest declines during downturns.

How to Allocate Your Portfolio Based on Risk Preference

Once the influencing factors are clear, actual allocation becomes straightforward. Here are three common portfolio templates:

Aggressive Allocation (suitable for young, risk-tolerant investors)

• Stocks: 50% | Funds: 30% | Bonds: 15% | Cash: 5%
• Further, allocate some funds (e.g., $100–$200) to forex or cryptocurrencies

Balanced Allocation (suitable for middle-aged, steady-income investors)

• Stocks: 35% | Funds: 35% | Bonds: 25% | Cash: 5%
• Risk and reward are relatively balanced

Conservative Allocation (suitable for near-retirement or principal-priority investors)

• Stocks: 20% | Funds: 40% | Bonds: 35% | Cash: 5%
• Prioritize stability over growth

If you only invest in funds, you can also configure within the fund category:

• Aggressive: 60% stock funds + 30% bond funds + 10% commodity funds
• Balanced: 40% stock funds + 40% bond funds + 20% commodity funds
• Conservative: 20% stock funds + 60% bond funds + 20% commodity funds

How Beginners Can Step-by-Step Build Their Own Portfolio

Step 1: Understand your risk tolerance

This isn’t based on feelings but on scientific assessment. Many online risk preference questionnaires exist, asking a series of questions to determine if you are aggressive, balanced, or conservative.

This step is crucial because it guides the entire subsequent portfolio design.

Step 2: Develop an investment plan based on age and goals

Investment goals are generally categorized as:

Wealth Growth

• Set specific targets, e.g., “double in 5 years”
• Suitable for young, high-risk-tolerance investors
• Requires periodic adjustments to seize market opportunities

Wealth Preservation

• Aim to beat inflation and maintain purchasing power
• Suitable for those with accumulated assets or retirees
• Focus on low-risk products

Cash Flow Sufficiency

• Prioritize liquidity, accessible at any time
• Suitable for entrepreneurs or those needing flexible payments
• Mostly allocate to savings accounts and highly liquid assets

Step 3: Understand the characteristics of your selected assets

This is an often-overlooked step in portfolio allocation. Before deciding proportions, you must have a clear understanding of the risk and return features of stocks, funds, bonds, fixed deposits, etc.

Different assets have vastly different volatility, liquidity, and return potential. Blindly allocating is as dangerous as a doctor prescribing medication arbitrarily.

Step 4: Make a specific allocation plan and execute

Suppose your plan is:

• Investment goal: double assets in 5 years (from 1 million to 2 million)
• Allocation: 50万 in stocks + 30万 in funds + 10万 in fixed deposits + 10万 emergency funds
• Execution: build positions in each asset according to these proportions

Don’t forget to reserve emergency funds. This 10% reserve isn’t wasteful but a safeguard. Life always has unexpected expenses—being prepared is wise.

What to Do After Setting Up Your Portfolio?

Building the portfolio is just the starting point. The market changes, and so should your portfolio.

Regular evaluation and adjustment

Different market cycles cause significant changes in asset performance. Assets that performed well may suddenly underperform, requiring rebalancing.

It’s recommended to review your portfolio quarterly or semi-annually, considering:

• Significant deviation of an asset’s performance from expectations
• Changes in your life stage (promotion, marriage, retirement)
• Major shifts in the market environment
• Adjustments in your risk preference or investment goals

Set stop-loss and take-profit mechanisms

Predefine target prices and stop-loss points to avoid emotional decisions during market swings. Take profits when an asset hits your target; cut losses when it falls beyond your preset limit.

Maintain a rational mindset

This is perhaps the hardest part. During market volatility, there will be panic and overly optimistic voices. Staying disciplined and sticking to your long-term plan is key to successful portfolio management.

Common Questions About Portfolio Allocation

Q: Can small funds also build a portfolio?
A: Absolutely. The key is understanding the minimum investment thresholds for each asset. In Taiwan, many funds require only NT$3,000 minimum, bonds are accessible at low thresholds, and CFD products are good options for small investments.

Q: Does building a portfolio guarantee profit?
A: Not necessarily. A portfolio aims to balance risk and reward, but final returns depend on market performance and asset quality. Initial asset selection and periodic adjustments are both crucial.

Q: Can I build a portfolio if I know nothing about investing?
A: It’s recommended to learn the basics first. Understanding the prospects, entry points, and risks of various assets is essential. Consulting a professional financial advisor can also help tailor a personalized plan.

Q: Can I copy someone else’s portfolio directly?
A: Not recommended. While you can use similar portfolios as references, it’s best to customize based on your age, income, risk preference, and personal circumstances.

Q: After setting up my portfolio, can I just leave it alone?
A: That’s a common misconception. Portfolios require regular review and adjustment because market conditions and your personal situation change. Periodically check the performance of each asset to ensure alignment with your goals.

Summary: Your Path to a Portfolio

Building a scientific investment portfolio requires three conditions:

1. Basic Knowledge: Understand the characteristics of different assets
2. Self-awareness: Know your risk appetite and investment goals
3. Discipline in execution: Regularly evaluate and adjust, avoiding emotional reactions to short-term fluctuations

Portfolio management isn’t a one-time task but a continuous process of optimization. From setting clear goals, selecting assets, determining proportions, to periodic adjustments and risk management—each step influences your final returns.

Rather than chasing myths and legends of investing, focus on building a suitable portfolio for yourself. It may not be the most exciting approach, but it’s the most stable and sustainable—precisely how most investors ultimately grow their wealth.