What makes the perfect portfolio?

This is how you put together a portfolio that’s set fair for the future.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Are you a beginner at investing? Are you looking to build a portfolio of shares, but don’t know where to start? Well, let’s go in search of the perfect portfolio.

First, let’s think about the fundamentals. What determines whether a stock will rise or not? In one word, profitability. You need to invest in businesses that are likely to make strong earnings now and for years to come. You also want long-term investments that will trend steadily higher. Are these stocks that you can buy and forget about?

Go where the profits are

You need to consider where in the world the growth will be. Although you may know less about other regions, you need to be brave and look beyond the shores of the UK. And, wherever possible, think contrarian: when you genuinely believe in the prospects for a company, buy when others are selling.

Let’s look at the world today. The fastest growing economies in the world are emerging market economies. The two emerging engines of the world economy are China and India. The low salaries paid in these countries, combined with a highly skilled workforce, will produce a whole new range of global titans that will rake in the profits. Investing in these giants will be a key part of your portfolio.

There’s now a broad range of emerging markets funds, and I favour investment trusts in particular. Unlike unit trusts, investment trusts are listed on the UK stock market, and so can be traded like a common-or-garden share. Most emerging market investment trusts are now trading at a substantial discount, meaning you can buy them for less than their net asset value (NAV). This can add to your returns.

These are the picks

So, pick number one: Fidelity China Special Situations (LSE: FCSS). This is the leading China fund, and trading at a whopping 15.77% discount to NAV. The original Fidelity Special Situations was run by renowned fund manager Anthony Bolton and achieved an annual return of 19.5% over 28 years. Could Fidelity China achieve something similar? It just might.

Then, pick number two: JP Morgan Indian Investment Trust (LSE: JII). There are fewer options for investing in India, but this is the leading investment trust. And with a discount to NAV of 12.9%, again this is unduly cheap, and thus a strong buy.

Then, pick three: I would choose a few carefully selected UK companies with a large stake in the future. One clear trend is a boom in global consumerism. Another is growth in emerging market financial services. And another is the rising demand for healthcare services. Next is a global retailer that looks cheap at the moment. My contrarian instincts draw me to banks with a substantial business in emerging markets, such as BGEO and HSBC. And AstraZeneca is one of the world’s leading pharmaceutical companies. Pick a handful of these businesses for your portfolio.

Invest one third of your money in China, one third in India, and one third in these well-chosen British firms. Sprinkle well with cash, and wait, very patiently, for the bull market to get underway. In a few years, your investments should be blooming.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Prabhat Sakya owns shares in Fidelity China Special Situations and JP Morgan Indian Investment Trust. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

How much does an investor need in a Stocks and Shares ISA to earn £1,000 a month in passive income?

A Stocks and Shares ISA's a valuable asset for investors. Not having to pay dividend tax can be a big…

Read more »

Investing Articles

9% dividend yield! Could buying this FTSE 250 stock earn me massive passive income?

Assura looks like an outstanding stock for dividend investors to consider. But is the 9% dividend yield the passive income…

Read more »

Man putting his card into an ATM machine while his son sits in a stroller beside him.
Investing Articles

Why I think this month could be critical for the Lloyds share price!

Our writer explains why he thinks the bank's 2024 results will have a significant impact on the short-term direction of…

Read more »

British Pennies on a Pound Note
Investing Articles

This former penny share has soared 168%. Is the best yet to come?

When Christopher Ruane saw a penny share as a potential bargain last year, he was spot on. So having not…

Read more »

Mature couple at the beach
Investing Articles

£20k in an ISA? Here’s how it could generate £1 of passive income every hour — forever

With a long-term approach, Christopher Ruane explains how an investor could aim to earn a pound per hour in passive…

Read more »

One English pound placed on a graph to represent an economic down turn
Investing Articles

FTSE shares: overpriced or still a bargain?

Christopher Ruane reckons a storming FTSE 100 performance of late doesn't tell us much about whether there are still possible…

Read more »

Blue NIO sports car in Oslo showroom
Investing Articles

Would an investor have made money investing £2k in NIO stock 5 years ago?

Our writer looks at how NIO stock has performed over recent years and weighs the bull and bear cases as…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

5 steps to start buying shares with £5 a day

In a handful of steps, our writer explains how someone new to the stock market could start buying shares for…

Read more »