Explain How You Go Making An Investment Process

EXPLAIN HOW YOU GO MAKING AN INVESTMENT PROCESS
An investment is an asset or item that is purchased with the hope that it will generate income or
appreciate in value at some point in the future. An investment can refer to any mechanism used
for generating future income including bonds, stocks, real estate property or a business among
other examples. The process of investment involves careful study and analysis of the various
classes of assets and the risk-turn ratio attached to it.
An investment process is a set of guidelines that given the behavior of investors in a way which
allows them to remain faithful of the tenets of their investment strategy that is the key principles
which they hope to facilitate out-performance. There are five investment process steps that they
help you in selecting and investing in the best asset class according to your needs and
preferences. Below they are more details on every notes on investing process;
Step 1: UNDERSTANDING THE CLIENT

The first and the foremost step of investment process is to understand the client or the investor
his or her needs, his risk taking capacity and his tax status. After getting an insight of the goals
and restraints of the client, it is important to set a benchmark for the client’s portfolio
management process which will help in evaluating the performance and check whether the
client’s objectives are achieved.
Step 2: ASSET ALLOCATION DECISION

This step involves decision on how to allocate the investment across different asset classes that is
fixed income securities, equity and real estate. It also involves decision of whether to invest in
domestic assets or in foreign assets. The investors will make this decision after considering the
microeconomic conditions and overall market status.
Step 3: PORTFOLIO STRATEGY SELECTION

Third step in the investment process is to select the proper strategy creation. Choosing the sight
strategy for portfolio assets that will be added in the portfolio management process. The strategy
that conforms to the investment policies and investment objectives should be selected. There are
two types of portfolio strategy that is active management and passive management.
 Active portfolio management process refers to a strategy where the objective of investing
is to outperform the market return compared to a specific benchmark by either buying
securities that are undervalued or by shot selling securities that are overvalued. In this
strategy it requires close attention by the investor or the fund management.
 Passive portfolio management process refers to the strategy where the purpose is to
generate returns equal to that of the market. It is a reactive strategy as the fund manager
or the investor reacts after the market has respond.
Step 4: ASSET SELECTION DECISION
The investor needs to select the assets to be placed in the portfolio management process in the
fourth step. Within each asset class there are different sub asset-classes. For example in equity
which stocks should be chosen? Within the fixed income securities class, which bonds should be
chosen? Also the investment objectives should conform to the investment policies because
otherwise the main purpose of investment management process should become meaningless.
Step 5: EVALUATING PORTFOLIO PERFORMANCES

This is the final step in the investment process which evaluates the portfolio management
performances. This is an important step as it measures the performance of the investment with
respect to a benchmark in both absolute his objectives are being achieved or not achieved.
In conclusion, after all the above steps of an investment process, the investor needs to keep
monitoring the portfolio management performance at an appropriate interval should also
incorporate a sustainable investing process that allows you to hit the market done. That is
because the investment process provides you with a systematic way to create and handle a
portfolio aligned with your financial goals while seeking to manage the investment risk.
References
Dr Paresh B. Shah & Billy Singh Fundamentals of Financial Management.
Jiman Managerial Finance 11-14th edition Colling MzamaniUni.
Fredrick Owen Skae, Fancisco Antonio Amaral Virgario Managerial Finance.

Explain How You Go Making An Investment Process

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EXPLAIN HOW YOU GO MAKING AN INVESTMENT PROCESS

Step 1: UNDERSTANDING THE CLIENT

Step 2: ASSET ALLOCATION DECISION

Step 3: PORTFOLIO STRATEGY SELECTION

Step 5: EVALUATING PORTFOLIO PERFORMANCES

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