The process an investor takes to aid him in meeting his investment goals.
The procedures:
1. Create a Policy Statement
That contains the investor’s objectives and constraints as it relates to his investments, both in short run and long run. It helps to guide the investment portfolio manager in meeting the investor’s needs.
Investment objectives
Return requirement, income requirement, risk tolerance.
Investment constraints:
Liquidity needs, time horizon, tax concerns, legal and regulatory factors (for institutions) and unique needs and preferences (e.g. ethical investing).
2. Develop an Investment Strategy
A strategy that combines the investor’s goals and objectives with current financial market and economic conditions.
3. Implement the Plan Created
Put the investment strategy to work
4. Monitor and Update the Plan
Monitor for the changes of both markets and investor’s needs and to update the plan.
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