How to Build a Share Portfolio from Scratch

So you’ve got your brokerage account set-up? Check.

You’ve got some cash set aside to invest? Check. 

And you’ve got some great shares or ETFs on your list? Check. 

 

So, how do we combine all of the shares and ETFs together in a rock-solid portfolio?

 

The answer: we use a Core & Satellite approach. 

 

The Core & Satellite approach combines your conservative and reliable long-term investments (in the Core) while also helping you invest – without putting it all on the line – in your ‘high risk’ or ‘best ideas’ style investments. 

 

It Starts with the Core

As any good personal trainer knows, big muscles mean nothing if you don’t have a strong core to keep it together. An investor knows that his or her most important part is the Core. 

 

The Core of an investment portfolio will consist of: 

  • Lower risk investments 
  • Long-term investments (e.g. 5+ year positions)
  • Low-cost investments (e.g. low-cost index fund ETFs, managed funds, or other assets) 

 

For example, large and established blue-chip shares, ETFs, dividend shares, cash in savings, bond ETFs and even things like investment property could be considered ‘Core’ positions for wealth creation. 

 

Rask tip: investors should always set aside at least 6 months of living expenses in cash before investing. This is your emergency money and gives you peace of mind to cover financial emergencies (e.g. car services, home repairs, etc.) without selling shares. This is not part of your Core. 

 

Imagine an investor who is starting out today has $5,000 and plans to invest $1,000 every month. Using the Core & Satellite approach, the investor might start with the Core positions, including a couple of ETFs, blue chip shares or other reliable investments. 

 

 

Rask tip: Try getting one or two years’ experience, or set a target investment amount (e.g. $50,000) before you start adding ‘Satellite’ investments to your portfolio. 

 

Adding on the ‘tactical’ satellites

This part of portfolio construction is optional but encouraged if you want to be an ‘active’ investor. 

 

Once you’ve got a few months or years of experience in the share market under your belt, and only if you’re comfortable taking more risk with smaller positions, consider adding Satellite positions. 

 

Satellite or ‘tactical’ positions are smaller than Core positions. For example, if a low-cost index fund ETF in the Core is 5% of your portfolio, a ‘Satellite’ position might be 1% or 2% of the value of your portfolio. 

 

So what is a Satellite investment? 

 

A Satellite investment could be anything that: 

  • Is higher risk
  • Has higher fees (e.g. more than 1% per year)
  • Is not reasonably predictable (e.g. Bitcoin, shares bought as part of a trading strategy, etc.)

 

Examples would include small-cap shares (shares of companies with a market capitalisation less than $500 million), shares of companies which don’t pay a dividend, cryptocurrencies, short-term positions, etc. 

 

In other words, anything that’s not in the Core. 

 

After 2-3 years, as your experience builds and your portfolio grows, you get to a point where you are committing half of your investment savings to your Core and half to your Satellite. Again, Satellites are optional. We think that having only ‘Core’ holdings is probably the best thing for most investors.  

 

Paper Trading

Finally, if you’re just starting out and not ready to commit your savings to investing, consider paper trading. 

 

Paper trading is where you give yourself ‘fake dollars’ (e.g. $10,000), write down the 10 shares you want to own on a piece of paper, the share price and how many ‘fake dollars’ you would invest in them. 

 

After a month, calculate your returns. How have you performed? If you’re not ready to invest, keep paper trading. If you are ready, consider starting small with $500 or $1,000 each month. 

 

Keep in mind you will make mistakes. It’s all part of learning to be a better investor. 

 

And how do you become a better investor? Read our next tutorial “Sharpening your investing edge”. 

 

Must-use resources:

 

SelfWealth Ltd ABN 52 154 324 428 (“SelfWealth”) is the holder of an Australian Financial Services Licence (AFSL No. 421789).

SelfWealth is authorised to provide General advice only.

General advice is advice that does not take into account your individual situation, needs and/or objectives and as such, before acting on our advice you should consider the appropriateness of the advice, having regard to your individual situation, needs and objectives.

This may mean seeking independent professional personal financial advice from a Licensed personal financial advice provider, such as a financial planner, investment adviser, or appropriately Licensed accountant before using our services.

SelfWealth does not issue any advice, recommendations or opinions in relation to the appropriateness or otherwise of you acquiring, holding or disposing of any securities. Any information or advice that we provide is either factual or general in nature only and is given with no consideration of your individual circumstances.

If our advice relates to a particular financial product, such as the SelfWealth SMSF Leaders ETF, you should read the relevant Product Disclosure Statement (PDS) before making any decision to acquire the financial product.

The information and general advice that SelfWealth provides is not intended to be an inducement, offer or solicitation to acquire; nor is it intended for distribution to, or use by, any person in any jurisdiction where such distribution or use would be contrary to local law or regulation.

 

Risk Disclosure

All financial products involve risk. Past performance is not a reliable indication of future performance. Before taking any action in relation to any financial product, you should ensure that you understand the specific risks involved and the suitability of acquiring those risks, including your abilities in respect of managing those risks.

Investing in certain financial products (e.g. shares and other securities including their derivatives) carries a high level of risk as you may incur losses up to the total of your original investment and in the case of some derivatives products, losses that exceed your original investment.

Please consider the relevant SelfWealth Members Term and Conditions before entering into any transaction.

Latest News

SelfWealth Screens

Start trading today from just $9.50

close