How to build an investment portfolio from scratch, experts say ETFs are the ideal foundation
Blue Whale’s Stephen Yiu recommends low-cost, diversified exchange-traded funds and a long-term approach for new investors
New investors looking to build a successful investment portfolio from scratch can begin with exchange-traded funds (ETFs) and a patient, long-term plan, Stephen Yiu, co‑founder and chief investment officer of the Blue Whale Growth Fund, advised.
Yiu said investing offers the prospect of materially higher returns than holding cash, but that investors must accept short-term fluctuations in value. "Leaving your investment alone long enough makes short-term volatility irrelevant," he added, and recommended ETFs as the simplest practical first step for beginners.
ETFs are funds that trade on stock exchanges and track an index, sector, commodity or other asset. Buying an ETF gives an investor immediate exposure to a basket of securities in a single trade, which spreads risk because poor performance by an individual company can be offset by others in the fund. Yiu described ETFs as "low effort, low fuss, and the ideal foundation for new investors."
Across markets, broad-market ETFs that track major indices such as the S&P 500 are commonly recommended because they deliver diversified exposure to many companies and sectors at a low cost. ETF investors benefit from transparency—holdings are typically published daily—and from intraday liquidity, allowing shares to be bought and sold during market hours.
Cost considerations are central to Yiu's guidance. ETFs typically carry lower annual expense ratios than actively managed funds, and many platforms offer commission-free trading for popular ETF products. Investors should also account for platform fees, spread costs and any foreign transaction charges when choosing where to buy funds.
Beyond choosing the vehicle, Yiu and other advisers say two practical steps help build a resilient portfolio. First, establish an appropriate asset allocation—how much to hold in equities versus bonds or cash—based on time horizon and risk tolerance. Second, contribute regularly rather than attempting to time markets: dollar‑cost averaging smooths purchase prices over time and reduces the risk of investing a lump sum just before a market downturn.
Portfolio maintenance is also important. Rebalancing—periodically restoring the allocation to the original targets—helps manage drift that occurs when assets perform unevenly. Rebalancing can be done annually or when allocations move beyond set thresholds. Investors should be mindful of the tax implications of selling holdings when rebalancing; using tax-advantaged accounts can reduce or defer liabilities.
Tax-efficient wrappers vary by jurisdiction, but common options in the United Kingdom include individual savings accounts (ISAs) and workplace or personal pensions, which shelter growth from income tax or capital gains tax within specified rules and limits. Yiu noted that using tax-advantaged accounts where available can increase net returns over time.
Yiu cautioned new investors against reacting to short-term market noise. While market downturns can be unsettling, historically, equity markets have rewarded long-term holders. That historical tendency does not guarantee future results, so investors should align portfolio choices with personal financial goals and timelines.
For those who prefer a hands-off approach beyond ETFs, low-cost target‑date or multi-asset funds can provide built-in diversification and automatic rebalancing, though they may carry higher fees than simple index-tracking ETFs. Conversely, investors seeking to out‑perform the market should understand that active management generally involves higher fees and does not assure better returns.
Opening an account, selecting a few broad, low-cost ETFs, setting a contribution schedule and periodically reviewing the allocation form a simple framework for building a portfolio from scratch, according to Yiu. He said the combination of diversification, cost control and a long-term time horizon offers a practical route for many first-time investors to move from cash savings into a growth-oriented portfolio.
Financial advisers and independent sources can help tailor these steps to individual circumstances, including risk tolerance, investment goals and tax situations. Investors who are unsure about their plan or who face complex financial circumstances may consider seeking professional advice before making significant investment decisions.