Making investment decisions is a complex process that requires careful analysis and planning. Having a clear investment process flow chart can help investors systematically evaluate investment opportunities and make informed decisions. This article will provide an overview of the core steps involved in a typical investment process flow chart, including determining objectives, asset allocation, security selection, portfolio construction, execution, and monitoring.
Set clear investment objectives and constraints
The first step is to have a clear understanding of your investment goals, time horizon, and risk tolerance. This will guide decisions on appropriate investments. Any constraints, such as liquidity needs, tax concerns, legal and regulatory factors, should also be considered at this stage.
Strategic asset allocation based on objectives
Asset allocation involves deciding how much to invest in different asset classes like stocks, bonds, real estate etc. This step aligns the asset mix with targeted risk-return profile. Asset allocation should be based on expected returns and risks of each asset class.
Select appropriate securities within each asset class
This step focuses on selecting specific investments, such as individual stocks and bonds, that can enable investors to efficiently achieve their asset allocation strategy. Rigorous security analysis is conducted to identify securities with attractive risk-return characteristics.
Construct optimal portfolio based on asset allocation
The next step is to combine selected securities into a diversified portfolio that aims to maximize returns for a given level of risk. Portfolio construction techniques help create portfolios that are aligned with target asset allocation and risk tolerance.
Implement trades and execute transactions
This stage involves using trading strategies to execute purchases and sales of securities to build the target portfolio determined in earlier steps. Efficient trade execution helps minimize transaction costs.
In summary, the core steps in a typical investment process flow chart are: establishing objectives, asset allocation, security selection, portfolio construction, execution, and monitoring. Following a systematic investment process can lead to better investment outcomes over the long run.