Building a fund portfolio for the long-term

A solid long-term investing strategy often means you’ll have to wait for results, rather than chase them. It’s not flashy, and it’s not fast. But with time, consistency, and patience, a well-built portfolio can deliver the best outcome.

In this guide, we’ll show you how to build a long-term portfolio using mutual funds. It’s split into three sections:

1. Planning your portfolio
   
   
2. Building your portfolio
   
   
3. Managing your portfolio

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Let’s dive in.

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Planning your portfolio

Before you start building a portfolio, you need to figure out why you’re investing, which account to choose, and how to select the best investments for your goals.

1. Set clear investment goals

Are you saving for retirement, a home deposit, or perhaps another long-term goal?

Your goal, and how long you can leave your money invested, will shape your strategy. The FCA recommends investing for at least five years to give stock markets enough time to smooth out the ebbs and flows from any short-term dips. 

2. Understand asset allocation

‘Asset allocation’ refers to how you choose to divide your money across different asset types. How you go about this will differ depending on how long you’re able to invest for, and your goal at the end of the road. 

The investments you select are key to managing risk and return when it comes to asset allocation. And generally, with greater risk will come the potential for greater return. On the other hand, taking less risk will usually result in lower returns too. The longer your investment horizon, the more risk you may be able to take. If you’re closer to needing the money, a more conservative mix might suit you better.

3. ISA vs SIPP: Choosing your account

• Stocks and Shares ISA: useful for long-term goals. You can invest up to £20,000 in the 2025/26 tax year, and not worry about paying UK tax on the investments . We have plenty of resources on how to start investing in an ISA. 
• Self-invested personal pension (SIPP): built for your retirement. You’ll get tax relief on contributions, but can’t access your money until 55, with that number rising to 57 in 2028. Learn more about SIPPs through our guide to retirement investing. 
• General investment account (GIA): there are no tax benefits to a GIA, but some investors opt for this account if they have already maximised the tax benefits from their ISA and SIPP.

Building your portfolio

Once your goals and asset mix are clear, it’s time to start choosing funds. Mutual funds are a solid place to start, as they are managed by professionals who tend to buy a mix of diversified assets, including shares, bonds, or even other funds, in line with the investment strategy set out by the fund in its Key Information Document (KID). When you invest in a mutual fund, you own units in it, and your returns will depend on that fund’s overall performance.

1. Compare mutual funds

Here are a few things to look out for when you’re choosing mutual funds for your portfolio.

• Fund strategy: A mutual fund can take on all sorts of strategies, from a more balanced structure to a growth-centric approach.
  
  
• Fees: Check for the fund’s Ongoing Charges Figure (OCF), or any relevant management fees.
  
  
• Performance history: Focus on the mutual fund’s long-term trends rather than the short term blips, but remember that past performance is not a reliable indicator of future returns. 

Freetrade lets you invest in mutual funds commission-free. You can now buy and sell funds on Freetrade using the web platform and on the app. Stay tuned as we add more funds, build in more data, and open up transfers.

2. Use a core and satellite strategy

Once you have an idea of the funds you would like to invest in, you can build a base with core mutual funds (like global index funds, or ETFs), then add satellite funds with more specific themes (like tech or energy mutual funds). You can think of the ‘core’ as your steady basis, and the ‘satellite’ as the smaller and more niche investments. 

This is an approach that many investors take to balance their investment return stability and growth potential.

3. Invest

With Freetrade, you can open an ISA, take control of your retirement with a SIPP, or invest without limits in a GIA.

Our range of mutual funds offer a mix of active or passive investing approaches. There are investments for all risk levels, which makes it easier to invest for your specific financial objectives. All of our investments are commission-free too, so you won’t pay when you trade and we don’t charge additional platform custody charges on funds. 

Managing your portfolio

Now that you’re invested, it’s a matter of keeping things running smoothly. And the good news is, less is often more at this stage.

1. Review and rebalance when necessary 

It’s a good idea to check in on your investments every once in a while to make sure the choices you made in the past are still right for you now. If one market or asset is vastly outperforming, while another is underperforming, that may be an indicator it’s time to change your approach. But don’t go overboard, and always remember to zoom out. 

2. Stay invested through ups and downs

The chart above shows how a $10,000 investment in the S&P 500 between 1990 and 2023 would have grown. Missing just the 10 best days in the market would have drastically reduced your return compared to having been fully invested for the ups and downs alike. That’s because plenty of the greatest ‘recovery days’ came right after market drops.

Investors who sold during downturns and waited to reinvest likely missed those crucial periods, hurting their overall gains. While timing the market can be tempting, history shows that long-term investing wins out.

3. Don’t overtrade

The more you tinker, the more likely it is that your emotions will get involved. It’s one of the most common investor mistakes. But it’s a battle that can be best fought with a consistent, hands-off approach. For instance, with recurring orders, your money is drip-fed into the market. That way, investing happens in the background without you having to manually invest and be tempted to make rash changes.

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Important information