There are two ways of selectinig portfolios at the moment.
1. The first is the a model proposed by Harry Markowitz
2.The second model is Sharpe's Diagonal (or Index) Model which is an extension of the original Markowitz Model but which is computationally far simpler.
Both the models consider two factors in choosing a portfolio. These are:
(i) the expected return on the portfolio
(ii) the risk associated with this return (i.e. the standard deviation of the return).