5 Investment Process Steps: 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, and before investing you should educate yourself on what is investment process and the steps involved in the investment process so that you gain good returns on your investment.

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

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 and so this article will explain the investment process by first explaining what is investment process and then the steps of investment process.

What is Investment Process?

Before delving into the stages of investment process, first, you should ask yourself, what do you understand by investment process. The process of investment decision consists of specific regulations that help the investors to stay true to the tenets of the rightful investment behavior. The process of investment decision helps you to perform your tasks better.

The investment decision process helps you to come out of any issues you might be facing with your work performance. The investment decision process helps you to overcome that by improving your work performance and make good decisions with the stages of investment process. This article will explain the process of investment to carry out profitable investments so that you gain a deeper understanding of what is investment process.

Let us take an example that will help to explain the investment process. Most people think that investing in any sort of property or putting their money in a fixed deposit account will help them to accumulate gold and this is the only way to explain the investment process in short. While this expectation is correct, it should not be ignored that financial institutions like banks offer a small percentage of interest on most of their schemes.

That being said, it is time that people are made aware of the various other ways in which they can invest their finances which will provide them suitable schemes and better returns. To know what is investment process, you should consult a financial advisor. They will not only explain the investment process but also help you in making better investments.

Financial advisors explain the investment process to their clients and keep in touch with them regularly to assess their financial situations. It is difficult to explain process of investment if we explain what it is. It is also important to look into it deeply with the steps of investment process.

Investment Process Steps

In the process of investment, there are main 5 investment process steps that help investors better explain investment process. Steps of investment process help investors to gain insight into their financial situations. That gives a better understanding of the financial goals to the investors.

The various steps in investment process aid the client to gain a deeper understanding of the investment process but also to educate themselves about the actual working of the investment process. Before actually investing, investors should take utmost care of fulfilling the requirement of the steps in investment process as the investment process steps lead a hassle-free way towards a better understanding and in actually investing with the help of investment process steps.

Here are the following steps involved in investment process that help explain the process of investment:

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

To explain the investment process, the first step is to plan. 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 the investment decision process steps, will help you (and your agent) decide on the right policies and investment strategies.

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Gaining insight is a crucial part of investing, which makes this one of the important steps of investment process. The other steps of investment process will only be helpful to the investors if they are fully aware of their financial standing so that they are capable enough to indulge in high-risk areas.

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, 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.

Defining your investment objectives is one of the important steps in investment process. The steps of investment process help the investors to move in the right direction. One of the most important steps in investment process was to assess your financial situation. The moment you know where you are financially standing, you become aware of what your financial goals should be.

Afterward, you must set the benchmarks to track how well your investment is doing with the help of investment decision process steps. 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.

When considering property as a first-time buyer or long-term investor you need to consider that it’s a long-term asset and can be illiquid. This means that it’s very hard to convert to cash in the short term and if you try to sell quickly it usually means taking a hit on the price. The property does provide a consistent return, however – as you will get the monthly rent each month. Consult with a mortgage broker before investing in property.

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 risk tolerance 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 are 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

This is the last of the steps involved in investment decision 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 return potential.

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Investment process steps are the stepping stones of wise investment. Investment process steps aid investors in such a way that they do not end up being misguided by others and are successful in making risky investments wisely.

Investment Management Process

The investment management process refers to handling the financial assets and other investments- not only selling and buying of the assets. The sole purpose of the investment management company is to oversee its clients’ money and use it to achieve their investment goals, explain the process of management.

While each investor has a unique goal, the five steps of investment management process help investment companies select and invest the best asset class according to the investor’s needs and risk tolerance capabilities.

The process of investment management helps investors to plan and efficiently manage investments. Apart from that, the process of investment management also aids investors in achieving whatever financial objectives they have set for themselves. This article helps to explain the process of investment with the help of five steps.

The investment process in investment management helps the investors to identify their goals clearly and realize how much risk they can tolerate, both, financially and emotionally.

1. Understand the Investor

The first and foremost step of the investment management process is to understand investor preferences and goals. Based on his goals, budget, and objectives, sets the benchmark for his portfolio management process, analyzing the performance and whether the investor’s objectives are achieved.

An investor’s goals are always based on his requirements. And his requirements stem from his financial status or ambition. An investor’s financial status should be assessed first to gain an understanding of what risks can be pursued and taken by an investor.

2. Asset Allocation Decision

Since it is so imperative. Asset allocation is the first investment decision. In this step, an investment management company finds out how to allocate the investment across the different classes, like, fixed-income securities, real estate, equity, mutual funds, domestic and international. During the investment process in investment management, a portfolio manager also considers the microeconomic condition in mind before allocating assets.

Asset allocation decision is an important task and should not be handled solely by a new investor. They should seek help or counseling from a financial advisor, as he would guide the investors in allocating their assets wisely in different classes according to the requirements. The financial standing of a client has to be considered while allocating their assets across different classes.

3. Select your Investment Approach

Now the investment strategy has been delineated. With the asset allocation in mind, the portfolio manager will select the investment vehicles that you will use to implement your portfolio strategy. Here, an investor needs to keep two things in mind while strategizing the portfolio; diversification and remaining invested value.

Many approaches can be undertaken while investing your finances. Choosing the best approach can be a headache too. After asset allocation is through and an investment strategy is ready, it is now the portfolio manager’s job to choose the best possible approach to make a wise investment that will yield the best possible returns.

4. Build your Portfolio

In the first three steps of the investment management process, we construct a portfolio that meets your preferences and goals. During the investment process in investment management, the building blocks for the portfolio are ETFs and low-cost, tax-efficient index funds which provide a great way to diversify a portfolio.

5. Report, Rebalance, and Review

To explain the process of management, this is the final and important of the five steps of investment management process. Here you need to measure the performance of the portfolio concerning a benchmark. Review and rebalancing help investors reduce the risk of losing money.

High-risk investments, if gone wrong can cause a huge financial loss to the investors. To prevent that the investors need to go through all the steps of the investment management process carefully. All the steps help the investors to choose the right investments with the best schemes and invest in them so that they can achieve their objectives with minimal to no financial and emotional risks.

Process of Investment Decision

The process of investment decision is undertaken by the investors to gain an idea of how much funds they are supposed to invest in the various investment areas.

The investment decision process depends on the investors investing in what type of assets they are investing in.

There are two types of assets in which the investors can invest the fund.

1. Long-term assets

2. Short-term assets

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The process of investment decision varies based on which type of asset the investors are interested to invest in.

Investment Decision Process Steps

1. Selecting the correct assets

The investment decision is an important part of the investment as it helps the investors to choose the correct assets that will be suitable according to their requirements. The investor is supposed to carefully observe and analyze everything investing opportunity that crops up while they are thinking of going through with a decision that will have an impact on their finances.

A secure portfolio can only be built by an investor if they consider all the characteristics and aspects of each of the assets that they are considering for investment.

2. Identification of any underlying risk

This is an important part of the investment decision process steps as it helps the investors to know how much risk the investment they are interested in entails. Every investment decision, that is taken up by the investors, is majorly or solely based upon the fact that how much risk it entails and how much returns will it provide in the future.

Investors can manage the risks on the investments by taking the help of investment tools so that the investor’s portfolio remains secure and they do not end up shouldering any risks in the investments.

3. Determine the profitability of investments

Investment decisions are a huge part of securing profitable investments. Based on the decisions the investors make, the profits of the firm or the investor rely on. It is up to the investor to make the correct decision that will help them earn large profits on their investments that will not only be beneficial for them but also their firm.

If the investor makes a wrong decision and ends up securing a wrong investment, that will result in a huge blow in the finances of not only the investor but also the firm. The huge losses may cause harm big enough for the investor to go bankrupt if not looked into immediately.

4. Gain a financial understanding

Any investor needs to have full knowledge of the field of investments. To get themselves a higher return on their investments, investors should know what kind of schemes in what investments will be the most suitable to achieve the requirements of their financial goals and objectives. The best investments are those that provide a high return, despite their risks.

But to play safely, the investors need to know the workings of how the investments take place. Apart from this, investors should know where they will find the right tools and the best consultation that will provide good techniques that will yield major profits on their investments.

Take a Step to Closer Financial Wellness

Make constant strides toward financial wellness. You may be earning a lot from your business or a 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.

Steps of Investment Process – FAQs

Q1. What are the steps involved in investment process?

Understand the Investor

Asset Allocation Decision

Select your investment approach

Build your portfolio

The report, Rebalance, and Review

Q2. Explain the Investment Process

The investment process is a set of guidelines that helps investors to handle financial assets and achieve financial objectives.

Q3. What is the Investment Management Process?

A process in which selling/buying of the assets and their reviewing, rebalancing, and analyzing phases are involved.

Q4. Why are Investment Process Steps Important for an Investor to Know?

Steps of investment process help investors to gain insight into their financial situations. That gives a better understanding of the financial goals to the investors. The various steps in investment process aid the client to gain a deeper understanding of the investment process but also to educate themselves about the actual working of the investment process.

Investment process steps are the stepping stones of wise investment. Investment process steps aid investors in such a way that they do not end up being misguided by others and are successful in making risky investments wisely.

Q5. Explain the Process of Investment

The process of investment consists of specific regulations that help the investors to stay true to the tenets of the rightful investment behavior. It helps you to perform your tasks better. The investment process in investment management helps the investors to identify their goals clearly and realize how much risk they can tolerate, both, financially and emotionally.

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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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