5 Steps in Investment Process – Steps of Investment Management Process

Investment Process

Making the right investments plays a crucial part in attaining financial wellness. Regardless if it’s a share of a business, products or pieces of equipment, or even a commercial property, placing money in the right things will lead to a comfortable life.

But, as simple as it may sound, investing is a gamble and is a very risky endeavor.

Many different factors can define how well your investment process performs for you. Hasty purchases won’t just give you minimal profits, but it can also be detrimental to your financial health and even your emotional well-being.

In order to make sure that you’re getting the most out of your hard-earned money, you need to have a better understanding of how the investment process works.

Investment Process Steps

In this article, there are main 5 investment process steps that help investors better how the investment process works.

Here are the following steps of investment process.

1. Assess Your Current Financial Situation                                                     
2. Define Your Investment Objectives
3. Allocate Your Assets
4. Select an Investment Process Strategy
5. Monitor and Manage Investment Process

Investment process steps

Step 1. Assess Your Current Financial Situation

Planning starts by evaluating your current financial situation. With your investment goals at the top of your mind, you’ll need to take note of the following factors:  your assets, liabilities, and, most importantly, your risk appetite. Taking the time to assess all of these will help you (and your agent) decide on the right policies and investment strategies.

To help you plan how much you should save for the years ahead, here’s a helpful investment process guide for every stage of your life.

Step 2. Define Your Investment Objectives

After taking note of the three factors mentioned above, you now need to create a detailed risk-return profile. Since the market is volatile in nature, you need to determine the level of risk you’re willing to take and the unpredictability of profit you can withstand. As a rule of thumb, remember that the higher the return, the higher the risk.

However, this doesn’t mean that you should go all in and put your eggs in one basket. The key to a successful investment is creating a strategy that can give you a decent amount of returns at an acceptable level of risk.

Afterward, you must set the benchmarks to track how well your investment is doing. Other than giving you a picture of its performance, it will also allow you to make adjustments when necessary easily.

Step 3. Allocate Your Assets

Now that you have a clear picture of your financial condition and a risk-return profile at your disposal, the next thing you have to do is to decide on how you’ll allocate your assets. As an investor, you can select from various asset classes, such as stocks, bonds, and cash, and split a decent amount of capital into each.

By diversifying your assets properly, you’re hitting two birds with one stone, meeting your expected amount of returns, and minimizing risk. Even though the asset allocation strategy you’ve chosen depends on your current financial situation, adjustments are expected to be made as you transition from one life stage to the next.

In your years as a young professional, you may be more willing to take risks and allocate more funds. But, in the case of people who are getting closer to retirement, it’s expected that they’ll cash out a certain amount since their tolerance for risk is lower.

Step 4. Select an Investment Process Strategy

Once you’ve allocated your assets, you’ll need to decide on how you’ll grow your money. Simply put, you have two types of portfolio strategies to choose from.

  • Passive – Passive portfolio management is a strategy wherein the investor’s purpose is to mirror a market’s index. It’s a reactive strategy that allows the investor to acquire returns equal to the share of the market.
  • Active – Active portfolio management entails more risk since the investor’s purpose is to outperform the market. Since this strategy requires constant tweaking, one’s complete focus and attention is needed.

If you’re thinking of which type is better, the answer depends on the asset classes you’ve selected and the influence of the economic sectors involved. To learn more about their key differences, take a look at this guide.

Step 5. Monitor and Manage Investment Process

Now that your strategies have been implemented, it’s time to monitor and manage your investments. To know how well your portfolio is doing, you need to review its performance at regular intervals. Whether it’s quarterly or annually, the benchmarks you’ve set will tell you if you’re still in line with your goals.

Since changes in your life and the economy will occur over time, it’s necessary to tweak your strategies, as well. If your investment process isn’t in line with your risk-reward profile, you can re-balance it by selling investments that have reached their targets and buying investments that have a high potential for return.

Take a Step to Closer Financial Wellness

Make constant strides toward financial wellness. You may be earning a lot from your business or high monthly salary, but no matter how much your income is, your approach and attitude towards money will end up defining your long-term financial stability.

By making the right investments for every financial goal you’ve set, you’re paving the way for a better tomorrow for you and your loved ones. Take note of these five crucial steps in investment process and you’ll make progress in due time.

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About FinanceGAB

Ajeet Sharma is a financial blogger and I am blogging since 2017. Financegab is a personal blog dedicated to personal finance. The main aim of this blog to help people to make well-informed financial decisions.
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