How to build you model portfolio

A guide for you to build a portfolio like a professional fund manager.

Investing requires immense due diligence. It involves countless hours staring down annual and quarterly reports, analyzing diverse industries, comparing competitors, and much more.

By creating a model portfolio, similar to those provided to high-net-worth clients at major banks or hedge funds, you can effectively manage your risk while simultaneously striving for Alpha. Drawing from my experience working in some of the largest banks and pension funds in Scandinavia, I have developed numerous types of model portfolios, and I firmly believe this structured approach can significantly benefit your personal investment strategy.

I have been on Substack for a little over a month now, and I’m thrilled to have found such a vibrant financial community for sharing investment ideas and reading educational content. As I am currently restructuring my own holdings, I thought it would be the perfect time to write about the process of building a model portfolio tailored to your specific needs.

Because we all have different financial goals, there is no single “correct” way to build the perfect portfolio. Often, the “big picture” of portfolio construction gets lost when we focus too much on individual new investments. Without a bird’s-eye view, you might unintentionally end up concentrated in only a few sectors, which can be a double-edged sword depending on the market cycle.

In this post, I will walk you through my personal methodology for building a portfolio, in the hope that it helps you refine your own. I have divided this guide into separate segments so you can easily skip to the parts that are most relevant to you.

Investing in general

If you ask yourself why you are investing, the answer is usually simple: to create wealth, beat inflation, or save for retirement, a new house, or even a luxury like a new watch or car.

However, one thing is certain you must know why you are investing. Consider where you are in life right now. Do you truly have the time to be serious about active management? To be clear, running a portfolio of ten or more individual stocks requires an immense time commitment. Please do not underestimate this. If you want to be a serious investor aiming for the level of a Warren Buffett you need time. Truly understanding a business is a slow process. It requires dissecting financials, understanding operations, identifying competitive advantages, and estimating intrinsic value.

In major banks, an equity analyst typically covers only one or two specific sectors, such as Biotech or Financials. The reason is simple: if an analyst wants an “edge” to know, for example, why Bank of America is a better play than Wells Fargo they must understand the industry in exhaustive detail. They need to know every product, every regulatory hurdle, and every competitive nuance.

These analysts spend their entire working week submerged in their covered industries and even then, these highly-paid professionals are often wrong. This brings me to one of my favorite quotes in finance, which captures this reality beautifully:

“Nobody knows if a stock is going to go up, down, sideways or in fucking circles, least of all stockbrokers, right?”

So back to the point, be honest about how much time you have, and also how much effort you want to put into investing.

Time in the market

Having now established how much time you feel you can realistically commit to your investments, you then have to make an assessment regarding your investment timeframe. Are you investing for a home purchase five years down the line, or a nest egg for retirement purposes?

Your timeline is your most important consideration in shaping your risk tolerance. It will also shape your diversification strategy. Will your portfolio need to be diversified, or will it be better to focus? In most cases, the more your time horizon, the less you need to be concerned with exactly when you put your investments into the market. As the old adage goes:

“Time in market beats timing the market”

Another aspect that the long term perspective helps in determining is the kind of vehicles you are supposed to use. Depending on your objectives and the time you set aside, you need to decide whether you ought to base your model on funds, ETFs, or stock picking.

Observations from social media

I strongly believe that you need to exercise extreme caution in digesting the online forums related to investments, especially on Reddit. Although Reddit may prove to be an exceptionally useful tool in helping you find new and inceptive ideas, you need to be wary before acting on their “top pick.”

On these forums, you will frequently come across investors promoting a particular stock. They will be very convincing in their posts, describing their ideas as “safe investments” to guarantee your status as a millionaire before you finish reading this article. In truth, these investors have their own share of motives and bias, and what seems to be a consensus from other posters is just a group of biased individuals.

The slippery slope lies between data-driven analysis and social-media-driven speculation. You immerse yourself in this fast-paced world of stock forums, not merely to look at points of data, but to step into a high-stakes arena of human psychology. Platforms that are made for engagement, in the financial world, almost always equate to volatility and urgency. The danger lies in the “narrative fallacy”-the tendency of these communities to wrap a complex market movement into a simple, emotionally charged story. Whether it’s a David-vs-Goliath battle against hedge funds or the promise of a revolutionary technology, these stories are designed to bypass your logical filters and trigger an immediate reaction.

Furthermore, there is also a misplaced feeling of time. For example, a model portfolio may have a time frame of years or decades, while on a forum, a “long-term” perspective may mean weeks. This breeds an unstinting pace of “having to do something.” If everyone else is posting about making tremendous gains on investments you do not have, there is a feeling of inadequacy. This leads an investor to deviate from their long-term plan and join what seems to be the latest trend. However, the people who have the greatest voice on social media are rarely the best informed; instead, they are typically the most arrogant. In order to build a successful model, one must learn to look past the social media feed as a gauge of what to do next. The idea is that one wants to look at the chaos and not be part of it.

Use only these forums to get new ideas from, you will find many great ideas along the way on these forum.

And my last note on this, stay away from meme stocks, I have been there. It looks like the next sure thing, the stock is up 500% over the last to days. If you see this, please just leave that website.

What about Substack?

Substack is fundamentally different from any other platform I have encountered, and I don’t believe it should be compared to typical forums on Facebook, X, or elsewhere. What I see here is a community of committed individuals focused on providing high-quality educational content and deeply researched stock ideas.

Beyond the content itself, the real value is in the engagement. With you, as a reader, being able to actually engage with the authors, to have particular questions regarding their valuations, their rational, or even their market view.

Of course, Substack is currently home to many investors boasting incredible returns over the last few years which is to be expected given the strong performance of recent markets. My advice is to look for those who appear most trustworthy, particularly those with proven “real-world” experience. If you are paying for a subscription, take full advantage of that access: engage with the creators, ask them tough questions, and treat it as a two-way educational journey.

Building the portfolio

What is a model portfolio?

Think of a model portfolio as the architectural blueprint for your entire collection of investments whether that includes bonds, ETFs, individual stocks, or other assets. It is exactly the same framework the most significant clients at major banks encounter when they are looking to deploy capital.

The real power of a model portfolio is that it provides a clear, bird’s-eye view of your risk profile, your geographic footprint, and your sector exposure. It moves you past just looking at a list of tickers and gives you an in-depth understanding of what you actually own. This clarity is essential for aligning your holdings with your actual view of the market.

For instance, if you believe tech stocks are positioned to outperform in the current market cycle, the model portfolio allows you to see exactly how much exposure you already have. It’s easy to buy a few “hot” tech stocks and lose track of your total weighting. If you also happen to own an S&P 500 ETF, your tech exposure is likely much higher than you realize. This is precisely where the model portfolio becomes an indispensable tool, it prevents those “blind spots” from unbalancing your strategy.

Define your risk

People often ask me which stocks they should buy or what investments they should make. My answer is always the same: first, you have to define your risk. This should always be step one. The question you need to ask yourself is: Are you seeking to make the most returns possible, or are you most concerned with minimizing losses? The answer, most people would say, is obviously “both.” You must in reality lean one or the other way.

There is a massive difference in how you approach an investment depending on your timeline and purpose. If you are using the investment for a retirement fund, you likely have a long investment horizon. This means you are unlikely to be disturbed by a little volatility. However, if you are investing funds for a house down payment in three years, you simply cannot tolerate a big investment draw down.

Defining your risk is the foundation of building your portfolio. Investing isn’t always easy; even if you find the cheapest stock on the planet and the fundamentals look perfect, the catalyst you’re waiting for might not arrive for a year or two. Finding the “perfect” investment often requires a bit of luck, and your timing will rarely be flawless. This is why I believe time is your absolute best friend.

Take a quick example from one of the smartest investors out there. Michael Burry wrote about Molina Healthcare ($MOH) back in late December, when the stock was trading around $180. The company looked great it was cheap and seemed ready to be picked up by Private Equity. Initially, the stock shot up to $200. Then, news broke about government pricing, and the stock has since dropped about 30% to around $125 today. I’m not saying this is a bad investment, but this setback proves that even “perfect” setups can suddenly require a much longer holding period than you originally planned.

Define your involvement

Do you truly have the time to analyze every single stock you own? Can you stay ahead of industry cycles, read every quarterly report, and act immediately if the fundamentals change your thesis on a company?

If you genuinely have the time for that level of rigor, then building a portfolio of individual stock picks is a viable path. If, on the other hand, your schedule is limited, you should strongly consider using ETFs for a significant portion, if not the entirety of your portfolio.

This is where the model portfolio approach becomes incredibly helpful. By choosing a foundation of mixed investments, you can construct a portfolio that is perfectly suited to your specific needs. In my experience, I frequently see diversified model portfolios that include a blend of bonds, individual stocks, ETFs, and even Private Equity (PE) investments.

Interestingly, the more complex your underlying assets are, the easier your management becomes when you treat the collection as a single, unified model. Most modern investment platforms now allow you to view your holdings in depth, providing the transparency you need to manage this structure effectively.

What to buy?

Again, it all starts with your risk. The "safer" you want your portfolio to be, the more diversification you should seek. This is often best achieved through ETFs. When building a more conservative ETF-based model, I generally recommend that roughly 70% of the core should be in broad indices like the S&P 500 or the Euro Stoxx 600. The remaining 30% can be used to "spice" the portfolio with current themes, such as nuclear energy or green tech. While this structure may lead to lower expected returns compared to a concentrated stock-picking strategy, that isn't necessarily a bad thing. As Howard Marks famously put it:

A portfolio that contains too little risk can make you underperform in a bull market, but no one ever went bust from that; there are far worse fates.

Take the current situation with software stocks as an example. The market has performed exceptionally well for a long time, and if you weren’t exposed to software, you likely missed out on some major gains. However, if you are just now establishing a portfolio heavily weighted in names like PayPal or Adobe, your portfolio might have a significant amount of “underwater” work to do just to break even after recent volatility.

I know bonds aren’t exactly the most “sexy” investment, but mixing your portfolio with bond ETFs is a proven way to dial back the risk. Personally, I just exited my S&P 500 position. My reasoning was twofold: I wanted to reduce my US dollar exposure, and I wanted to lower my concentration in AI. Since I already hold individual positions in Google and Meta, I felt my total exposure to the AI theme was becoming unbalanced. I might be wrong, of course, but this is how I use a model portfolio view to make intentional decisions.

ETF investment

Although ETFs are hailed as the ultimate ‘set it and forget it’ strategy for building diversity, using them in this manner is actually adding underlying weaknesses to an investment portfolio. The biggest risk, therefore, is the general unawareness regarding what is, in fact, driving the markets “behind the scenes.” A common phenomenon, for example, is an investor putting their assets into an index fund like the S&P 500, assuming that, given its name, this is actually an evenly weighted bet on the overall market. In the current market, however, much of the S&P 500 is actually due to only a handful of so-called “tech stocks”. This means that instead of buying a part of everything, you are actually engaging in a massive concentration of risk on a particular theme, say Artificial Intelligence or a semiconductor investment theme. If the particular bubble you are invested in “pops,” your “diversified index fund” would lose value just like a speculative stock.

On the other hand, thematic ETFs, i.e., the ones you’ll use for sector play on AI, green energy, etc., tend to suffer from the flip side of the coin, the issue of exclusion. So you might end up buying the “AI Revolution ETF,” only to find out that the ETF does not include the companies actually leading the AI revolution because they fail to meet a particular requirement of ETF issuers or belong to a different industrial classification. Furthermore, you end up paying a premium on these ETFs, which invest in a bunch of stocks without even representing the best of the best in the segment. In order to properly manage a model portfolio, you need to understand the reality of the investment, i.e., the ETF, and check whether the underlying stocks actually align with your risk profile. Diversification is only possible if you are actually aware of the investment segment.

Find a tool to help you keep track of your model portfolio

Building a model portfolio is only the first step; the real work lies in keeping track of it over time. There are countless websites and tools available today that can help with this, and your current trading platform likely already has these features built-in. My point is simple: use them. These tracking tools are invaluable for maintaining your strategic vision. For example, if you are like me and looking to rotate some of your capital into a new region, such as Europe, a model portfolio view allows you to see exactly where your current exposure lies. Instead of guessing, you can see the precise percentage of your wealth tied to different currencies and jurisdictions, making it much easier to shift your investments with confidence.

Portfolio risk

Model portfolios can give you a view of your current risk. Maybe you can track how your portfolio will act in different cycles, you might be able to look back to see how your portfolio would have performed in 2008.

When it comes to portfolio risk, most people will inevitably think of losing money, but a sophisticated model portfolio demands a much more involved explanation. It is not just about having a “red” day in the market; risk is about the permanent loss of principal or, rather, the threat of underperforming your long-term goals because your strategy was not resilient enough to withstand the market correction. To effectively utilize risk, you need to go beyond the fear of the markets changing and learn to view it not only as an emotional constraint but also, rather, as a mathematical constraint. So, every single asset will need to be managed according to its “risk-adjusted return,” or, in other words, how much risk am I exposing myself to for every potential dollar of profit?

If an asset is offering the same potential return as another, but its price is also much bumpier, then in the realm of risk management, you need to view the bumpier stock as much more expensive due to the emotional toll it will take on you.

Effective risk management is also a matter of understanding concepts such as correlation, the ways that parts of your financial picture move relative to each other. Just because you think you have twenty different stocks, you should not assume you are diversified. If you have twenty stocks that perform poorly when interest rates go up, you may simply be “diworsified” versus diversified. The key to effective use of risk is seeking out those resources that don’t move up and down with each other. That way, you can sell those high-performing stocks that never went down to buy the ones that did go down. But the goal, really, is not just to eliminate risks, you’ll never be able to do that, but to curate risks so you’re taking on smart risks that you’ve researched and can afford, while hedging those blind risks that could undo all your progress with a single market cycle.

Beta for risk management

In the business of building investment portfolios, perhaps the single best “rule of thumb” for anyone looking to quantify how much “market noise” they are really allowing to creep into their investment portfolios is the concept of Beta. In its most basic form, Beta is a measure of the underlying sensitivity of a given stock or ETF to the financial market as a whole - usually defined as the S&P 500 Index. A Beta of 1.00 means the investment has exactly matched the market’s moves. This means that if the market goes up 10%, the investment is expected to go up 10% as well. However, the true value in risk management comes from the outliers. Stocks with a Beta higher than 1.00 are a lot like a financial “magnifying glass” – they respond to the Bull Markets by going up more than the market, but can be equally disastrous in a Bear Market. Simply calculating the Weighted Average Beta of your entire model portfolio will allow you to determine whether you are inadvertently managing a Portfolio of “High-Octane” fuel that may be more than you can handle in the event of a correction.

At the other end of the spectrum, low-beta assets that have a beta of less than 1.0 represent the ballast on your ship. These are typically found in defensive sectors such as Utilities or Consumer Staples, which seem to hold their own when the Technology-heavy Indices are declining. Adding low-beta assets is not about being “scared” of growth; it is about strategic offsetting. For instance, if you are long a number of high-beta AI stocks, you may offset some of that volatility with a low-beta ETF focused on Healthcare Stocks. This is because the goal is that your portfolio is represented by assets that do not have the tendency to lose value simultaneously. In 2026, if you are an investor looking at the benefits of utilizing Beta as a risk management tool, the question is precisely how much market volatility are you willing to tolerate for the opportunity of growing your assets?

My final advise from “The psychology of money”

If you haven’t yet read The Psychology of Money by Morgan Housel, I highly recommend picking up a copy. Understanding the behavioral side of personal finance is just as important as the technical side, and this book is perhaps the best guide for doing exactly that.

A specific segment in the book captures the essence of what I’ve been discussing perfectly:

Become OK with a lot of things going wrong. You can be wrong half the time and still make a fortune, because a small minority of things account for the majority of outcomes. No matter what you’re doing with your money you should be comfortable with a lot of stuff not working. That’s just how the world is. So you should always measure how you’ve done by looking at your full portfolio, rather than individual investments. It is fine to have a large chunk of poor investments and a few outstanding ones. That’s usually the best-case scenario. Judging how you’ve done by focusing on individual investments makes winners look more brilliant than they were, and losers appear more regrettable than they should.

This is why the model portfolio is your most valuable asset. It forces you to stop looking at a single "regrettable" loser in isolation and instead see how your entire strategy is performing as a whole. It gives you the confidence to let your few "outstanding" winners run while accepting that not every bet will go your way.

Contrary to popular belief, building a model isn’t about being perfect; it’s about being prepared. Hopefully, this glimpse into my process has been beneficial for you in crafting your journey. In the coming weeks, you can expect me to discuss more of my ideas on my European allocations and the “post-AI” world. Until then, keep your eye on the big picture and don’t allow the noise of the day-to-day activities prevent you from staying focused on your goals.