Jul 30, 2025
Key Takeaways
- A financial portfolio is the total of all of your investments — such as stocks, bonds, cryptocurrency, cash and gold — from your retirement, college savings and taxable accounts.
- To choose the best mix of assets for your needs, consider your risk tolerance and financial goals when setting your portfolio up.
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Financial portfolios aren’t just for the ultrarich. If you have a 401(k), an individual retirement account or even a few bucks in a high-yield savings account, you’ve already started building one. And the secret to making it work? Diversification, or spreading your investments across multiple asset types to minimize your overall risk. Below, the MarketWatch Guides team explains what makes up a financial portfolio, how to build one and what to watch out for.
What Is a Financial Portfolio?
A financial portfolio is a collection of investments, cash and other assets — such as stocks, bonds, cryptocurrencies, and even collectibles such as artwork — held across accounts including 401(k)s, IRAs and brokerages. While some items in a financial portfolio can be tangible, such as gold bars or pieces of artwork, most are digitally held.
Your financial portfolio is the total of all assets you have invested. In theory, these assets generate income or appreciate over time and can be liquidated to cash fairly quickly. This means assets such as homes or vehicles are not typically included. Your portfolio is also an important part of your net worth calculation.
Investments Included in Financial Portfolios
There are many types of investment assets that can be included in a financial portfolio. Here are some examples:
Stocks
Stocks represent a slice of ownership in a company. When you buy stock, you become a shareholder. Stocks can increase in value over time if the company performs well — but they can also lose value. Some companies pay dividends on their stocks, which are payments made to shareholders based on profits.
Bonds
Bonds are loans you make to corporations or governments. In return, they pay you regular interest payments and return your original principal when the bond matures. Bonds are considered less risky investments than stocks because their prices don’t tend to fluctuate as much.
Mutual Funds and Exchange-Traded Funds
Mutual funds and exchange-traded funds are baskets of stocks, bonds and other assets that represent a large number of companies, sectors or industries. These funds often give investors a low-cost and straightforward way to diversify their portfolios.
Index funds can be sold as either mutual funds or ETFs, which are similar in makeup but slightly different in terms of how they’re traded. Mutual funds’ prices are set once per day, while ETFs are traded similarly to stocks, with their values fluctuating during the day as they’re bought and sold.
Real Estate Investment Trusts
Real estate investment trusts own, and often operate, real estate holdings that produce income, such as shopping malls or office buildings. You can invest in REITs within your portfolio to get exposure to real estate without having to own or manage properties yourself.
Cash and Equivalents
Many investors keep a percentage of cash in their portfolios, either as uninvested cash in brokerage or retirement accounts or in certificates of deposit, high-yield savings accounts or money-market accounts.
Alternative Assets
These financial assets are separate from traditional categories of stocks, bonds or cash equivalents, but still have the potential to bring high returns. Known as alternative assets, these can include cryptocurrencies, commodities and precious metals. Most alternative assets can be quite volatile, so be careful before investing a large share of your portfolio in them.
Types of Financial Portfolios
Financial portfolios are often designed to reflect an investor’s goals and risk tolerance, which is the degree of financial uncertainty someone is willing to assume. Another key consideration is what’s known as preferred asset allocation, or how a portfolio is divided into different types of assets.
Growth Portfolio
A growth portfolio is an aggressive portfolio designed for long-term growth. It’s usually composed primarily of stocks, stock funds or other riskier assets that have the potential for higher returns over the long term. People with a high risk tolerance, such as younger investors with several decades until retirement, may choose growth portfolios. In our May 2025 investing survey of 2,000 people, 64% of investors said their primary goal was long-term growth.
Income Portfolio
Income portfolios are often considered conservative and are traditionally made up of less volatile investments such as bonds, CDs or dividend-paying stocks. Assets in an income portfolio don’t usually appreciate as much over time as assets in a growth portfolio, but they’re less likely to move way up or way down in value.
Income portfolios can be designed to pay out steady streams of money over time, so they’re often ideal for older investors who are already in retirement or investors with short-term goals who prioritize steady income over growth. About one in five investors in our survey said their primary investing goal was generating passive income.
Balanced Portfolio
A balanced portfolio is generally considered a moderate-risk portfolio that balances high-risk stocks with lower-risk equities and bonds to better manage possible volatility. Roughly 42% of the investors in our survey defined their risk profile as “moderate.” Investors who are closing in on retirement or want to invest but have a lower risk tolerance might consider a balanced portfolio with a 60/40 asset allocation, which is 60% stocks and 40% bonds.
Custom Portfolio
Some investors have specific investing desires outside of a risk-focused portfolio. For example, if they want to invest in companies that align with their personal values, they may avoid businesses in certain industries, such as firearms and tobacco. In that case, an environmental, social and governance portfolio could be a good fit since it would focus on investing in companies that meet certain sustainability or social standards. Other investors may want to invest in specific sectors, such as real estate or health care.
How To Build a Financial Portfolio
Building a financial portfolio should be a thoughtful endeavor, something that aligns with smart investing principles and your financial goals. You don’t have to figure it out by yourself — many brokerages, such as Fidelity and J.P. Morgan, have tools to help you build a portfolio. Alternatively, you can consult a financial adviser who can help you decide on investments and properly diversify based on your personal set of goals and risk tolerance.
1. Define Your Goals and Risk Tolerance
If you’re just starting out on your investing journey, you’ll need to figure out two important factors. The first is your goal for your financial portfolio. Do you have multiple investing goals, such as funding retirement and saving to buy a home? You may want to get in the habit of investing regularly and work your way up to saving 15% of your income for retirement, an often-recommended benchmark.
The second factor is your risk tolerance, and your investing goals can play into this. If you’re a young investor with time on your side, you may be more willing to choose high-growth, high-volatility investments such as a stock-heavy portfolio since you’ll have many years to recover from big losses. If you’re nearing retirement and want to maintain a steady income from your investments to pay bills and fund travel, you’ll likely want less risky investments.
2. Choose the Right Assets
There are many types of investments you can choose, so it’s helpful to understand how much time and energy you’re planning to put into your portfolio. You may consider using a robo-adviser or a portfolio manager to help you pick investments. Robo-advisers use computer algorithms to automatically pick and manage the investment assets in your portfolio while portfolio managers are professionals who help you put together a portfolio to achieve your specific financial goals.
Passive investors, or investors who want a more hands-off approach that requires less portfolio rebalancing, may want to use a mix of mutual funds or ETFs to fund their portfolios. Both options offer low-cost, passively managed index funds that seek to match the market’s performance. And since these funds provide built-in diversification and rebalancing, they don’t require as much time as portfolios composed of individual stocks or bonds.
Active investors, or investors who make more frequent trading decisions in an attempt to outperform the market, need to carefully consider their asset mixes — such as stocks, bonds and alternative investments — depending on their goals and risk tolerance.
3. Use Tools and Diversify
There are many tools to help investors properly structure and diversify their financial portfolios. If you want to keep your costs low, you might consider a robo-adviser, which typically has fees ranging from 0% to 0.35%, based on our research. Robo-advisers use algorithms to help you select a mix of assets based on your goals.
Alternatively, professional financial advisers are more costly — 42% of investors we surveyed pay fees ranging from 0.5% to 2%. But financial advisers often create personalized plans and are available to answer questions and tweak portfolios as needed. Thirty percent of the investors we surveyed worked with a professional financial adviser exclusively, while 5% used robo-advisers exclusively.
4. Maintain and Rebalance Your Portfolio
Once you’ve set up your preferred asset allocation, it’s good to set up a timeline to review and rebalance, such as every six to 12 months. Rebalancing is making sure your current investments align with your ideal asset allocation. For example, if you’ve set up an allocation of 60% U.S. index funds, 20% international funds and 20% bonds, you’ll need to sell and redistribute any section of your portfolio that’s gained more than your ideal percentage.
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What To Watch Out for With Financial Portfolios
You should understand your risk tolerance and carefully set up a portfolio strategy, but you’ll also need to watch out for things that can derail your investing success.
Lack of Diversification
Diversifying your investments can shield you from the risk of one poorly performing investment by spreading the risk across many companies. If the majority of your money is concentrated in one single investment, you could lose a huge chunk of your portfolio.
Timing the Market
Looking for the optimal time to buy and sell investments will likely cause you to miss out on the stock market’s biggest gains, which can happen within just a handful of trading days. Generally, research shows that putting your money in the market as soon as it’s available results in the biggest returns over time.
Ignoring Fees or Taxes
Many investors have no idea how much they’re paying in advisory fees. In our investing survey, 20% of investors didn’t know how much they paid for their financial advisers. Also pay attention to how much you’ll have to pay in taxes when you sell your investments, as well as the ideal time to do so. You may also be able to use strategies such as tax-loss harvesting to minimize your tax liability.
Emotional Investing
Investing for the long term takes discipline and a carefully considered strategy. Chasing the latest hot stock is likely to result in lower performance, higher fees or both. If you aren’t sure you can stay impartial, consider having a financial professional manage your investments.
Frequently Asked Questions About Financial Portfolios
A good financial portfolio is well diversified, meaning it contains a mix of growth assets, such as stocks, and income assets, such as bonds, as well as one that meets an individual investor’s unique set of goals and objectives. Assets should also be spread across industries, such as health care and energy, and across regions, such as domestic and international markets.
You might also consider investing in mutual funds or ETFs for built-in diversification and automating your investments to take advantage of dollar-cost averaging, which is the practice of investing a fixed amount at regular intervals. It can also help to make sure your portfolio is as tax-advantaged as possible, such as by funding any retirement accounts you qualify for.
In finance, an example of a portfolio would be the total of all of your investments, whether they’re individual stocks and bonds in a brokerage account, a target-date fund in your retirement account or alternative assets such as cryptocurrency.
Diversifying a financial portfolio is important because it protects you from the risk of one of your assets performing poorly. If you spread the risk out between multiple assets, you’re more likely to be shielded if one asset performs poorly.
*Data accurate at time of publication
*The content provided in this article is for informational purposes only and should not be construed as financial, investment or tax advice. You should consult a licensed financial adviser or tax professional before making any investment decisions. All investments carry risks, including the possible loss of principal. Past performance is not indicative of future results.
