In: Finance
Making and investment requires various steps to be followed. These are as follows:
Step 1: Investment Policy: at this stage the investor analysis his financial affairs and objective of making the investment. This stage is also known as the preparation of the investment policy stage. At this stage the investor should see how much emergency fund or the liquidity fund is required by him and what type of investment asset will provide that much liquidity i.e what type of investment he requires.
Step 2: Investment Analysis: After the investor has gathered information about what type of investment he requires, the next step is to gather information about the type of securities available for the purpose of investment. Comparative analysis should be done on the basis of the type of industry, kind of security, benefits derived, etc. the main purpose of this stage is to gather information about the prices of various securities and the risk associated with them.
Step 3: Valuation of securities: This is the most important stage of investment process because at this stage the investor has to calculate the present value of the future benefits which he will get from the investment keeping in mind the value of the investment. An appropriate weight should be assigned to different investment opportunities along with the forcasted benefits to estimate the value of the investment assets. The comparison should be done among the current market price and the value of the asset to determine the attractiveness of an asset.
Step 4: Portfolio Construction: At this stage, the investor will see how much of investment he wants to diversify in various assets, so as to maintain safety, growth and the liquidity of the funds. Consideration should also be given to the investment timing. The investor should keep in mind the objective of the investment and what concepts or applications will satisfy his objective. Accordingly, he should constantly monitor and evaluate the performance of his investment asset and if required we should switch over to alternative investment proposal.