What Is An Investment Process? Stages of the Investment Process
Whether you are going to invest in an insurance policy, property, gold, mutual funds or equity, there is an investment process that we need to follow. It is also known as preparation of the investment stage. Before investing in any asset, we need to analyze its risk carefully-return ratio.
Are you thinking about assets and want to know the investment process? If yes, then you have reached the right place. In this blog, we will tell you the 5 stages of the investment process.
5 Stages of Investment
Here are the stages of the investment that you need to follow when investing in the market.
Stage1- Understanding the goals of the clients
The first stage of the investment process is to understand clients' requirements. Ask his risk-taking capacity, financial status, and tax status to get insight about its financial profile. Once you get the insight about the client's financial condition and goals, set the benchmark, and evaluate whether it is matching to his objective or not.
Stage2: Asset allocation decision
In this stage, you need to consider microeconomic conditions and market status before allocating assets to the client. There are various assets that you can offer to the client- fixed deposit, mutual funds, equity, insurance and so on. Along with market condition, consider the client's risk appetite and finance in mind.
Stage3: Portfolio Strategy Selection
Now you need to create a proper strategy when creating a portfolio for the client. In general, portfolio strategy is called in two types-
Active portfolio strategy
Passive portfolio strategy
Active portfolio strategy focuses on buying/selling assets in response to changing marketing conditions. However, if you use an active portfolio strategy, you need to take high risk. You only use this strategy for the clients who want high return and take high risk.
Passive portfolio strategy refers to a process where the objective is to generate return equivalent to that of the market. It is also known as a reactive strategy because the decision is made after analyzing the market response. The risk is less here, but it doesn't offer a high return. If you have a client who is not a risk-taker, then you should create a portfolio by using passive portfolio strategy in mind.
Stage4: Asset selection process
It is one of the most important stages. Now you need to select the assets and place them in the portfolio. In the asset class, there is a sub-asset class. For example, in equity, which stock should you pick? Within the fixed bond asset class, which bond should you choose?
Along with that investment, the objective should be considered when selecting the assets. Otherwise, the investment process will become meaningless.
Step5: Evaluating and monitoring the assets
Once you design a portfolio and allocate assets, now it's time to analyze the performance of the assets. There are so many analytical tools that are available on the internet that will help to measure the performance of the portfolio.
After all, the investment mentioned above stages, investors need to keep an eye on its investment portfolio. If you see the asset is not performing well, you can sell it. Re-balancing a portfolio is a must because it is the only way to maintain a risk/return level.
Read More: Top 10 Best Investment Plans in India 2020