Investment is the acquisition of an asset to gain a return or other income from the asset in the future. The wealth or income generated from investment can be used as savings during retirement or even purchase other assets. Choosing the right instruments to achieve your financial goals becomes easier if you understand the investment. Investment can be in the form of stocks, bonds; unit-linked insurance plans, and even mutual funds. Some of the benefits of insurance are:

  • You will be able to save for retirement. This is because you will not be in a position to work forever. By investing the salary you earn during the working years, you will be able to get more funds to sustain you.
  • Your money will grow. Capital appreciation is a long-term goal that helps many people secure their financial future. You can make investments in real estate, commodities, equity, or even mutual funds. Investment risks are quite high but the returns are huge.

Some of the steps involved in the  investment process include:

1)   Understanding the client

This is the initial step when undertaking investment. You are required to understand the investor’s need and even his or her tax status. The investor’s risk-taking capacity is also considered at this stage. After evaluating the client’s goals and objectives, a client’s portfolio management process is created. This will help keep track to identify whether the client’s objectives were achieved.

2)   Asset allocation decision

This stage involves strategies on how to allocate the investment across various asset classes i.e. equity, real estate, or even fixed income securities. Decisions on whether to invest in domestic or foreign assets are made in this step. The client or the investor then makes the decision based on the prevailing market conditions and the microeconomic conditions.

3)   Portfolio strategy selection

After the asset allocation decision, the next step is the portfolio strategy selection. This step is undertaken to select the proper strategy of portfolio creation. This helps in identifying the assets to be added to the portfolio management process. At this level conformations to the investment strategies and investment goals are selected. The portfolio strategy can either be active or passive. An active portfolio is where the goal of investment is to produce market returns. Under this strategy, both the risk and return are very high. In the passive portfolio management process, the main objective of the investment is to generate returns that are equivalent to that of the market.

4)   Asset selection decision

At this point, the investor chooses the assets to be included in the portfolio management process. Each asset class entails a different sub-asset-classes. For instance, in inequity, you should select the assets to be included. The investment objectives should be in alignment with the investment policies.

5)   Evaluating portfolio performance

This is the last step when taking investment. At this step, the performance of the portfolio management is evaluated. It is a crucial step in the investment process because the performance is measured in both absolute and relative terms. At this stage, the investor s ability to determine whether the set investment objectives were achieved.

Wrapping up

To sum up, there are five steps involved in the investment process. The above article illustrates the steps and the activities are done at each level. You can consult a financial analyst or consultant to assist you in undertaking investments. They can guide which investment to undertake.

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