How to build a winning shares portfolio to turboboost your returns
An investment in British engineering powerhouse Rolls-Royce five years ago would have delivered a staggering 1,354 per cent return. Such figures explain why buying individual company shares remains highly popular among UK investors.
Yet investments can go down as well as up, and stock-picking can deliver expensive mistakes. An Ocado investment from the same period would have lost 89 per cent of its value. The online grocer's struggles stemmed from fundamental business problems: major clients Kroger and Sobeys terminated their partnerships and closed Ocado-powered fulfilment centres, citing that the energy required to run the technology eroded profit margins.
The contrasting fortunes of these two companies illustrate why successful share investing requires time, effort and diversification. In summer 2021, aerospace specialist Rolls-Royce languished in the Covid pandemic doldrums, while grocery technology star Ocado rode a boom in business. Predicting which would prosper required looking beyond current headlines to underlying business fundamentals.
Building your portfolio strategy
When you buy a share, you take direct ownership of a small slice of a company. If it performs well, the share price should rise and your stake increases in value. Many companies also pay dividends to shareholders as regular rewards for holding their shares.
The long-running Barclays Equity Gilt Study demonstrates the power of dividend reinvestment. A £100 investment in the UK stock market in 1945 would have grown to £11,570 by the end of 2024 through price appreciation alone. With dividends reinvested to buy more shares, that same investment would have reached £326,231.
This approach has solid academic foundations. Modern Portfolio Theory, developed by Harry Markowitz in 1952, provides the mathematical framework underpinning diversification strategies. Markowitz won the Nobel Prize in Economics in 1990 for demonstrating that portfolio risk depends not just on individual assets but on the correlations between them.
Investment research suggests holding at least 20 companies spread across different sectors. The classic mistake is buying too few different companies. While there is no magic number, this level of diversification helps spread risk effectively.
Looking beyond UK borders
It has become substantially easier and cheaper in recent years for British investors to access overseas stock markets, from Apple to Nvidia in the US. The popularity of international investing has soared thanks to the runaway success of US tech giant shares.
Avoiding home bias and investing beyond UK shores is considered an important part of diversification. You can buy foreign shares directly, or use funds or index-tracking Exchange Traded Funds to achieve this with part of your portfolio while focusing efforts on UK stocks with the rest.
This mix-and-match approach, sometimes called core and satellite, is often recommended by investment experts for those who want to pick individual company shares. By holding the bulk of investments in broadly spread global funds, you can diversify in a cheap and simple way while allocating some of your pot to individual company shares.
Despite growing interest in share investing, UK retail investor participation stands at 34 per cent in 2026, up from 27 per cent in 2020. This still lags behind other major markets like Australia, where over 50 per cent of adults own stocks.
Researching your investments
As a share investor, you must be willing to take time to research companies carefully and track their performance. To be consistently successful, you also need to understand balance sheets, results and trading statements.
When weighing up a company's shares, examine the fundamentals: its key financial metrics. Read the latest trading statements, results and annual report. Look at what the company says about itself and its prospects, and what others think.
Consider how the company is positioned in terms of financial strength, management, prospects for growth, and ability to pay dividends. Can it capitalise if things go its way? Is it robust enough to survive if things go against it?
This emphasis on personal research remains crucial. Despite increased trust in AI for investment decisions rising from 29 per cent in 2024 to 45 per cent by 2026 according to Morningstar surveys, 68 per cent of UK investors still don't rely on AI for investment decisions. Human research and judgement remain dominant in share selection.
Choosing a trading platform
The cost of buying individual shares has tumbled in recent years, largely thanks to pressure from challenger DIY investing apps. This represents a structural shift in the market, with established providers forced to slash fees.
Until a recent shake-up, DIY investing giant Hargreaves Lansdown charged £11.95 to buy and sell shares. It now charges £6.95 for share dealing, while rival Interactive Investor charges £3.99, AJ Bell charges £5 and Fidelity charges £7.50. These services also come with account fees.
In contrast, investment app Trading 212 offers free share dealing with no account fee or charge for holding investments. The platform has reached 2 million clients. Freetrade and IG also offer free share dealing with fee-free account options.
The FCA's 2024 Financial Lives survey found that 1.6 million UK adults actively use a trading app, with almost half of users aged 18 to 34, demonstrating the growing appeal of DIY investing platforms among younger investors.
If you plan to buy and sell shares regularly, it pays to consider investment fees carefully. For buying overseas shares, watch out for foreign exchange fees, which vary substantially. Trading 212 charges 0.15 per cent for foreign exchange, significantly lower than Hargreaves Lansdown and Freetrade's standard charge of 0.99 per cent.
The right platform depends on your investing style, how frequently you trade, and whether you plan to invest internationally. Choose carefully, as costs can significantly impact your returns over time.
