isa portfolios

Investing is a tricky game that requires skill, judgment, and a smidgeon of luck. Here we look at the basics of setting up a unit trust portfolio.

• Avoid flavour of the month funds but think about your long-term goals and then choose appropriate investments.
• Remember that different investments have varying risk profiles, on the whole smaller companies are riskier than large companies, but when they perform well they may give better returns. Some industry sectors are in decline while others are growing, investing overseas may have political and currency risks as well as the inherent risk in the shares.
• For the first-time investor a very narrow fund is generally a very bad idea - plunging in to a Japan fund or a medical fund is not the wisest thing to do. Buying a fund with a fair geographical, sector and size spread is your best bet.
• Remember you are investing for the long term.

Jason Hollands of Bestinvest, a financial adviser, says it is "daft" the way some people buy investments in isolation from their personal situation. He welcomes the development of "fund supermarkets" which allow you to buy a range of funds from different fund management groups under one umbrella.

He adds: "We think the benefits are so strong there is no point in taking out a fund company's in-house plan if their funds are also available in a fund supermarket." The reasons for this are that a company that is good at investing in smaller US companies will not automatically be the best choice when it comes to European investment.

For example, if you were investing a full £7,000 in shares and bonds and wanted a balanced portfolio, this is what Bestinvest would recommend:

• 23% quality bonds
• 16% high yield bonds
• 21% UK large
• 11% UK medium
• 8% UK small
• 8% North America
• 5% Europe
• 1% Japan
• 6% Cash

"This blend of bonds/equities should generate a mixture of income and growth. The equity exposure concentrates on blue chip shares while the bond component has a high yield bias reflect our view on the attractions of the sector," says Bestinvest.