10 Smart Portfolio Investment Strategies

Anyone can invest in the financial markets with sufficient resources and access, but simply choosing an asset and hoping for the best isn't an optimal approach. It’s better to diversify your investments among several assets to hedge against risk.

Solid portfolio investment strategies can help you weather the storm if one of your investments falters, allowing your other investments to pick up the slack.

Exceptional portfolio investment strategies strike the right balance between various assets, such as stocks, mutual funds, and fixed-income securities. No strategy always wins, but careful planning ensures your portfolio has what it needs to succeed in almost any market condition. 

What is an investment portfolio? 

An investment portfolio is an asset collection organized around a core concept or strategy. Every investment portfolio differs, as each investor employs a unique design depending on their goals. While some prioritize maximizing dividend income, others take a value-investing approach by focusing on growth stocks or exchange-traded funds (ETFs).  

Investment portfolios provide value because they keep your investments organized and accessible. They offer guidance and context to help you reach your goals and achieve financial freedom. By keeping you on track with your investments, a well-constructed portfolio grants you the clarity you need to know whether you should rebalance or double down with dollar cost averaging to meet your financial goals.

Exceptional investment portfolios 

Finding the ideal portfolio strategy can prove tricky. Luckily, you don’t have to start from scratch. Let’s look at 10 of the best investment portfolios you can adopt right now. 

Dragon Portfolio

Many portfolios claim to perform well in all economic conditions. After all, a balanced portfolio should theoretically weather any financial storm. The Dragon Portfolio shows excellent historical performance to that effect. 

Created by Chris Cole, chief information officer at Artemis Capital Management, and based on the research paper "The Allegory of the Hawk and the Serpent," the Dragon Portfolio uses non-correlated asset diversification to ensure at least some investments in your portfolio will exhibit growth, no matter the economic situation. 

[Note: The Dragon Portfolio was created by Artemis Capital and Christopher Cole. The original research can be found here and here.]

Permanent Portfolio

Another historically well-performing, all-season portfolio is the Permanent Portfolio, designed in 1980 by Harry Browne. In fact, its success inspired many investment strategies that came after it to use Browne’s initial design as a base or benchmark.

Building a Permanent Portfolio requires you to divvy your resources (in whatever manner you see fit) between large-cap stocks, long-term U.S. Treasury bonds, cash, and gold or other precious metals. 

The Permanent Portfolio offers many advantages, especially for risk-averse investors seeking long-term growth. Although its gains are modest compared to more aggressive portfolios on this list, the Permanent Portfolio still represents a solid option for many investors.

Golden Butterfly

Among Permanent Portfolio derivatives, the Golden Butterfly arguably ranks as the best-known. This portfolio management strategy seeks to counteract the Permanent Portfolio’s relatively low growth rate by including small-cap stocks in its asset allocation. 

By including small-cap stocks, the Golden Butterfly experiences a small but significant performance increase with a commensurate increase in risk. This potential performance and risk boost makes the Golden Butterfly a good fit for investors looking for a marginally more aggressive strategy than Browne's approach.

Warren Buffett’s 90/10 rule 

Everyone knows the name Warren Buffett. Berkshire Hathaway’s legendary chairman and CEO designed his investment approach that allocates 90% to the S&P 500 index while reserving the remainder for lower-risk investments, like the U.S. bond market. 

An essential aspect of the 90/10 is that it’s not a strict asset allocation. You can modify the weights according to risk tolerance by proportionally increasing allocations in low-risk investments at the expense of opportunity cost. This makes the 90/10 ideal for investors who value highly customizable portfolios that offer significant control when balancing volatility, risk, and performance. 

Coffee House Portfolio

In investing, it's common to conflate complex strategies with successful ones. Bill Schultheis’s Coffee House Portfolio eschews complexity and takes a more straightforward approach. The strategy takes its name from Schultheis's idea that you could devise a simple but effective system while enjoying a drink at your favorite coffee shop.

The Coffee House Portfolio’s strategy begins with a traditional 60/40 split, but it shakes things up by splitting asset allocations between targeted stock sectors, with equal amounts invested into small-cap, large-cap, and international stocks. This results in a 60/40 portfolio that performs more aggressively while remaining diversified.

It’s a unique approach and a simple concept. If you’ve just started investing or don’t know where to begin, you may want to consider the Coffee House Portfolio. 

Ray Dalio’s All Weather Portfolio

Long considered the brainchild behind the risk parity movement, Ray Dalio designed the All Weather Portfolio to do what its name suggests—perform well in various economic conditions. Much like the Coffee House Portfolio, the All Weather Portfolio is straightforward to implement, though Dalio’s portfolio predates the former, as he first conceptualized the strategy in the 1970s. 

Rather than maximize returns from one or two assets, the All Weather Portfolio aims to balance risk across several asset classes, such as U.S. stocks, long- and intermediate-term U.S. Treasury bonds, commodities, and gold. By spreading out risk, the All Weather Portfolio achieves high stability while producing consistent returns, making it ideal for investors with a long investment horizon.

HFEA Portfolio

A relative newcomer, the HFEA Portfolio sprang to life a few short years ago on the Bogleheads investment forum. HFEA is an acronym for Hedgefundie's Excellent Adventure, named after the forum poster who designed the approach, and it turns the traditional 60/40 split on its head.

An HFEA Portfolio uses triple-leveraged S&P and long-term Treasury funds to maximize short-term returns. At the same time, this strategy dramatically increases risk.

Although this unorthodox approach can pay off big, it can also end in disaster. Only young investors with a high-risk tolerance—like Hedgefundie himself—should even remotely consider opting for the HFEA Portfolio, as this group of investors can afford to lose big in a worst-case scenario.

7Twelve Portfolio

Created in 2008 by Craig L. Israelsen, the 7Twelve Portfolio takes asset diversification to new heights. Its asset allocation includes seven different asset classes, and total investments in the portfolio number a dozen—hence the name 7Twelve. 

Despite its complexity, the portfolio takes a relatively hands-off strategic approach, except for periodic rebalancing. This makes the 7Twelve a good choice for investors who don't want to micromanage their investments but check in on them several times a year to ensure things are going smoothly.

Vanguard three-fund portfolio

Utilizing "the majesty of simplicity" because it concentrates on just a few asset classes, the Vanguard three-fund portfolio is another favorite on the Bogleheads forums. Its three evenly weighted assets—a total U.S. stock fund, a total international stock fund, and a total market bond fund—make the portfolio easy to set up and maintain. 

With the Vanguard three-fund portfolio, investors get free rein to balance the three assets equally or create a custom proportion, with a 64/16/20 split commonly cited among the most popular options. Its accessibility and flexibility make it a good fit for new and experienced investors.

Core-4 Portfolio

Created by Rick Ferri, the Core-4 Portfolio focuses on investing in four distinct asset types that can perform individually and work well in group settings. Created with low-cost DIY investors in mind, the Core-4 Portfolio aims to select assets serving economic purposes that appear fundamentally opposed to one another. 

It produces regular returns from rent, dividends, or interest, provides historical diversification benefits, and remains accessible by allowing investors to choose between low-cost asset options like ETFs or index funds.

Investors looking for minimal complexity, low fees, and a solid foundation will likely find the Core-4 an attractive portfolio.

Choose the right portfolio for you

You don’t need to stick to a specific investment strategy before you invest on your own. Anyone with access to the markets and the necessary resources can get started. 

However, you should consider following a proven portfolio to achieve success as an investor. The above portfolios have all undergone extensive analysis and back-testing to ensure they exhibit the right traits that align with their intended design. Whether you prize income generation, consistent growth, or minimal risk exposure, you can find the right portfolio that meets your needs.

If you’re ready to get started, Composer is the ideal place to get your feet wet. Our no-code algorithmic trading platform lets you copy the greats or customize your approach. You can even use simple, everyday language with our ChatGPT-4-powered AI tool to build a portfolio that caters to your needs. Sign up today and discover the future of trading.