Portfolio Allocation – Simple Ways to Build a Balanced Investment Strategy

Ever wonder why some investors seem to breeze through market ups and downs? The secret is often a well‑thought‑out portfolio allocation. It’s basically how you split your money across different types of investments so you can chase growth while keeping risk in check.

In this guide we’ll break down the idea into bite‑size pieces, give you a step‑by‑step plan, and show how the tips fit with the other articles on this site – from saving $20 a week to figuring out mortgage equity.

What is Portfolio Allocation?

Portfolio allocation is simply the mix of assets you hold – stocks, bonds, cash, maybe even property. Think of it like a pizza: you decide how much of each topping you want. Too many pepperoni slices (high‑risk stocks) can make the pizza hard to eat if you get a stomach upset (a market crash). Adding some cheese (bonds) and a light crust (cash) balances the flavor and keeps you satisfied longer.

Typical categories include:

  • Equity (stocks) – offers growth but can swing wildly.
  • Fixed income (bonds) – steadier returns, cushions volatility.
  • Cash or cash equivalents – easy to access, low return, but protects your capital.
  • Alternative assets – property, commodities, or even crypto for those who like a bit of spice.

Choosing the right split depends on three things: your goals, how much risk you can stomach, and how long you plan to stay invested.

How to Choose the Right Mix for You

Start with a quick self‑check:

  1. Goal: Are you saving for a house down‑payment, retirement, or a side hustle?
  2. Time horizon: Do you need the money in 2 years or 20?
  3. Risk tolerance: Can you handle seeing your portfolio dip 15% without panic?

Once you have answers, use a simple rule of thumb. For example, the "100‑minus‑age" rule suggests you hold (100 – your age)% in stocks and the rest in bonds and cash. If you’re 30, that’s 70% equity, 30% safer assets.

Let’s test it with numbers. Imagine you have £10,000 to invest:

  • 70% stocks = £7,000
  • 20% bonds = £2,000
  • 10% cash = £1,000

If the stock market falls 10% in a bad year, your stocks lose £700. But the bond and cash portions cushion the blow, so the overall loss is only about £500 – roughly a 5% dip instead of 10%.

Adjust the percentages if you feel uncomfortable. Maybe a 60/30/10 split feels safer. The key is to pick a mix you can live with during rough patches.

Don’t forget to review yearly. As you get older or your goals change, shift the balance. A small tweak each year keeps the portfolio aligned with your life.

Need help figuring out the math? Our article “How Much Equity Do You Need to Remortgage in the UK?” walks you through calculating loan‑to‑value ratios, which is a similar skill – turning percentages into real decisions.

Finally, remember that diversification isn’t just about asset classes. Spread your stock investments across sectors – tech, health, consumer – so a slump in one area doesn’t knock you flat.

That’s the core of portfolio allocation: pick a mix that matches your goals, keep it simple, and rebalance when life changes. With these basics, you’ll feel more confident whether you’re buying a new car, saving for a pension, or just trying to grow that £20‑a‑week habit into something bigger.

Warren Buffett 70/30 Rule Explained: A Practical Guide to Smarter Investing
  • By Landon Ainsworth
  • Dated 22 Jul 2025

Warren Buffett 70/30 Rule Explained: A Practical Guide to Smarter Investing

Curious about Warren Buffett's 70/30 rule? Get the facts on what it means, why it matters, and how you can use this famous approach in your own investing.