Chapter 4 — Build a Portfolio
A chapter moving from viewing products one by one to the three axes of diversification, weights, and review
Chapter 4 connects the equities and funds covered so far to the overall design question of what to hold and how much. The order to settle is how do I combine products, how do I read diversification across three axes, how do I compare weights, and how do I maintain the allocation. The aim is not only to find good products but to arrange them into something you can keep holding.
What you'll learn
- Choosing good products and building a good combination are two different things.
- As one rough guide, around ten individual holdings already dilutes the effect of any single company.
- But diversification is not settled by count alone — check it across product type, sector, and country/region.
- The same applies to funds: one fund can hold many names, yet heavy overlap thins the diversification.
- Optimisation is not
a technique for guessing the answer— use it as a tool for comparing weights. - Rebalancing is not a market call; it returns a drifted allocation to the design.
The four pages in this chapter
What Chapter 4 does
| Page | The question it answers | What you can do after reading |
|---|---|---|
| 4-1 What is a portfolio? | What is a portfolio actually about | See your assets as an overall allocation rather than a list of products |
| 4-2 The three axes of diversification | Can diversification be judged on holding count alone | Start from the rough guide of around ten holdings, then check product type, sector, and country/region |
| 4-3 Optimising a portfolio | Holding the same products, how do I compare weights | Use the efficient frontier as a handle for thinking about weights that suit you |
| 4-4 The basics of rebalancing and review | How do I tidy up when the allocation drifts | Separate target allocation, tolerance bands, and changes in your circumstances |
Read 4-1 onward and it becomes easier to carry your understanding of single products through to a real allocation, the three axes of diversification, comparing weights, and rules for review.