Having a balanced portfolio is an effective way to manage risk and support long-term growth, whether you’re just starting your investment journey or managing your long-term savings.
But what exactly is a portfolio, and what does “balanced” really mean in the context of your financial life?
In this Moneyfarm blog we’ll explore the answers by using practical examples, age-specific strategies, and straightforward tips to help you build a healthier investment mix.
At a Glance
- A balanced portfolio spreads risk across asset classes.
- The right mix depends on age, goals, and risk tolerance.
- Regular reviews and rebalancing help keep portfolios aligned.
- Capital at risk. Returns are not guaranteed.
What Is a Portfolio?
In simple terms, your investment portfolio is the total collection of assets you own, such as:
- Cash holdings
- Shares or investment funds
- Bonds or Gilts
- Property funds
- Commodities (i.e. gold or oil)
Your portfolio shows how your assets are allocated and the level of risk and potential return you are exposed to.
What Does “Balanced Portfolio” Mean?
A balanced portfolio spreads investments across different asset classes to help reduce overall risk and improve long-term stability.
By combining higher-risk assets (such as equities) with lower-risk ones (such as bonds or cash savings), a balanced approach can help manage volatility and support more stable long-term outcomes. However, returns are not guaranteed.
For example, Anna, aged 35, holds 70% of her investments in equities and 30% in gilts. When equity markets fall, her gilt allocation helps to mitigate losses and supports her long-term objectives.
Why Is Portfolio Balance So Important?
An unbalanced portfolio can expose you to excessive risk, or limit your potential for long-term growth.
If your portfolio is too aggressive, you may experience significant losses during market downturns. If it is too conservative, inflation may erode the real value of your returns, reducing your purchasing power in retirement (e.g. £1,000 today being worth £740 in 20 years at 2% inflation).
A balanced portfolio can help you:
- Manage volatility
- Align risk with your financial objectives and investment horizon
- Reduce the risk of emotional decision-making
- Remain invested through periods of market uncertainty
ISAs and Pensions in a Balanced Portfolio
When building a balanced portfolio, it is not only the mix of assets that matters but also the tax wrapper in which you invest.
A Stocks & Shares ISA offers tax-free growth and withdrawals, with an allowance of £20,000 per year (2025/26). It is flexible, but contributions do not receive tax relief.
Pensions, including workplace schemes and SIPPs, provide tax relief on contributions and often benefit from employer top-ups. They are designed for long-term saving and usually cannot be accessed until at least age 55 (rising to 57 in 2028). SIPPs also give more control over investment choices but require greater involvement.
In short, ISAs provide flexibility, while pensions and SIPPs deliver powerful tax advantages for retirement — and using the right wrapper can be as important as the asset mix itself.
How Your Portfolio Should Evolve With Age
Your investment strategy should reflect your stage of life as well as market conditions.
In Your 20s–30s: Building for Growth
- With a long investment horizon, you can usually take on more risk.
- A higher allocation to equities (up to 70–80%) may support long-term growth, balanced by bonds or other defensive assets.
- Short-term volatility is less important than long-term compounding.
Example: Marc, a 27-year-old investor, contributes monthly to a global equity tracker through a Stocks & Shares ISA.
In Your 40s–50s: Diversifying for Stability
- Life goals become clearer (property, children, retirement planning).
- A more balanced mix, such as 60% equities and 40% bonds or other lower-risk assets, may help reduce risk while maintaining growth potential.
- Equity income funds or gilts can add income and stability.
Example: Jack, a 48-year-old investor, holds a diversified mix of equity funds, UK gilts, and property exposure via a REIT.
In Your 60s and Beyond: Preserving Capital
- The focus shifts to protecting accumulated wealth and generating reliable income.
- Lower-risk allocations (for example, 40% equities and 60% bonds or cash savings) can help reduce volatility.
- Income drawdown, annuities, or equity income funds may provide more predictable returns.
Example: Louise, a 63-year-old investor, reduces equity exposure and reallocates part of her ISA into short-term bonds and equity income funds.
Portfolio Evolution by Age (Illustrative Table)
| Age Group | Typical Focus | Example Allocation | Key Considerations | Risks if Not Adjusted |
| 20s–30s | Growth and wealth building | ~70–80% equities, 20–30% bonds/cash | Long time horizon, ability to take more risk, compounding benefits | Too conservative could limit growth, missing out on long-term potential |
| 40s–50s | Balance growth and stability | ~60% equities, 40% bonds/other defensive assets | Clearer life goals such as property, family, retirement, need to diversify income sources | Overexposure to equities could mean sharp losses before retirement |
| 60s+ | Capital preservation and income | ~40% equities, 60% bonds/cash | Focus on protecting accumulated wealth, generating reliable income, planning drawdown | Too aggressive may risk capital at retirement, too cautious may allow inflation to erode value |
Important: These allocations are for illustrative purposes only and do not constitute financial advice. The right mix depends on your personal circumstances, goals, and risk tolerance.
The Risk of Neglecting Portfolio Reviews
Even a well-constructed portfolio will not remain balanced indefinitely. Markets change, circumstances evolve, and objectives shift.
If you do not review your portfolio periodically:
- Asset allocations may drift, leaving you overexposed to one sector.
- Risk levels can increase without you realising.
- Your investments may no longer match your time horizon or retirement needs.
Example: an investor built a balanced portfolio at age 45. Ten years later, without rebalancing, equities now account for 85% of holdings. A market downturn close to retirement could significantly reduce future income.
It is advisable to review your portfolio at least annually, and after major life events such as a new job, inheritance, or approaching retirement.
5 Tips to Rebuild and Maintain a Balanced Portfolio
If your portfolio no longer reflects your objectives, or you have never actively reviewed it, here are five steps to consider:
- Check your current asset allocation
Use your investment platform or ask your provider for a breakdown of your holdings. - Reassess your goals and investment horizon
Shorter time horizons usually require a lower-risk approach. Longer-term goals may allow for a greater allocation to growth assets. - Diversify across asset classes and regions
Avoid concentrating solely in UK equities. Consider adding global funds, bonds, or property exposure to spread risk. - Automate where appropriate
Many platforms offer ready-made portfolios or robo-advisers that align with different risk levels. - Rebalance annually
Over time, some assets will grow faster than others. Rebalancing helps bring your portfolio back in line with your target mix, keeping risk and return aligned with your long-term plan.
Key Takeaways
- A balanced portfolio spreads risk across asset classes and should reflect your stage of life.
- Your allocation typically shifts over time, moving from a growth focus to capital preservation.
- Regular reviews are essential to ensure your portfolio continues to align with your objectives.
- Rebalancing helps manage concentration risk and keeps your investments on target.
- If uncertain, consider seeking regulated financial advice — small adjustments today can improve your long-term financial position.
Capital at risk. Returns are not guaranteed. Tax rules can change and their effects depend on your circumstances.
FAQ
A balanced portfolio spreads investments across different asset classes, reducing the risk of being overexposed to one area.
Over time, asset allocations drift as some investments grow faster than others. Without rebalancing, you could unintentionally take on more risk than intended, leaving your portfolio misaligned with your goals and time horizon.
Yes. Tax wrappers can be just as important as asset allocation. ISAs offer flexibility and tax-free growth, while pensions provide tax relief and, in many cases, employer contributions, making them highly effective for long-term savings.
No. While diversification helps manage risk, all investments carry the possibility of loss. A balanced portfolio cannot eliminate volatility, but it can support more consistent long-term outcomes compared to concentrating in a single asset class.
*As with all investing, financial instruments involve inherent risks, including loss of capital, market fluctuations and liquidity risk. Past performance is no guarantee of future results. It is important to consider your risk tolerance and investment objectives before proceeding.
