Question

Describe the major steps in the construction of portfolio objectives.

Answer 1

The major steps in the construction of portfolios Objectives are as follows:-

1.Decide on the attidue to risk- It's important to determine how much risk we are willing to take on and how much risk tolerance ability we have got.

Factors affecting our attitude to risk are-Investment, time horizon,personality, overall asset base,job or income stability.

2.Decide on our objectives-Once we have decided upon the risk tolerance, one needs to decide upon the specific golas and objective which are to be achieved using the portfolio

Investment objectives could be as follows-Income and Capital growth.People often invest for capital appreciation or dividend growth.

3.Decide on our asset allocation-Once we have decided upon the objective, one should be looking for proper allocation of securities into differenty asset classes.

4.Choose the specific investments- Some specific investmments are made which will be different proportion of the portfolios.

5.Make the investments-Lastly we neede to make the investments using the appropriate medium which could either be broker or a portfolio manger or mutual funds.

Portfolio objective can only be achieved through active management of the portfolio through different economic scenario by overcoming the emotions and chasing the efficient mutual funds or stocks which can maximize the investment into the longer time frame.