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    Portfolio Management Process (Condensed)

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    sadam
    This document discusses the portfolio management process, which consists of 4 steps: 1) creating a policy statement specifying investment goals and risk tolerance, 2) examining current economic conditions to develop investment strategies, 3) constructing the portfolio to meet goals while minimizing risk, and 4) monitoring performance and updating the policy as needed. It emphasizes the importance of the policy statement in guiding decisions and being reviewed over time based on the investor's needs, risk preferences, and financial constraints.

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    Portfolio Management Process (Condensed)

    Uploaded by

    sadam
    409 views17 pages
    This document discusses the portfolio management process, which consists of 4 steps: 1) creating a policy statement specifying investment goals and risk tolerance, 2) examining current economic conditions to develop investment strategies, 3) constructing the portfolio to meet goals while minimizing risk, and 4) monitoring performance and updating the policy as needed. It emphasizes the importance of the policy statement in guiding decisions and being reviewed over time based on the investor's needs, risk preferences, and financial constraints.

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    portfolio management ppt handout

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    Portfolio Management Process[Condensed]

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    This document discusses the portfolio management process, which consists of 4 steps: 1) creating a policy statement specifying investment goals and risk tolerance, 2) examining current economic conditions to develop investment strategies, 3) constructing the portfolio to meet goals while minimizing risk, and 4) monitoring performance and updating the policy as needed. It emphasizes the importance of the policy statement in guiding decisions and being reviewed over time based on the investor's needs, risk preferences, and financial constraints.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    409 views17 pages

    Portfolio Management Process (Condensed)

    Uploaded by

    sadam
    This document discusses the portfolio management process, which consists of 4 steps: 1) creating a policy statement specifying investment goals and risk tolerance, 2) examining current economic conditions to develop investment strategies, 3) constructing the portfolio to meet goals while minimizing risk, and 4) monitoring performance and updating the policy as needed. It emphasizes the importance of the policy statement in guiding decisions and being reviewed over time based on the investor's needs, risk preferences, and financial constraints.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 17
    At a glance
    Powered by AI
    The key takeaways are that the portfolio management process involves establishing investment goals and constraints, examining market conditions, constructing a portfolio to meet goals, and ongoing monitoring and updates. Factors like risk tolerance, time horizon, and diversification are important to consider.

    The four steps in the portfolio management process mentioned are: 1) establishing a policy statement, 2) examining current conditions and forecasting trends, 3) constructing the portfolio, and 4) ongoing monitoring and updates.

    Factors that should be considered when constructing a policy statement include risks, time horizon, knowledge of markets, other financial resources, legal constraints, tax implications, and unique needs and preferences.

    Investment Analysis and

    Portfolio Management
    Sixth Edition
    by
    Frank K. Reilly & Keith C. Brown
    The Portfolio Management
    Process (From Ch. 2)
    Figure 2.2

    The Portfolio Management Process


    1. Policy statement - Focus: Investors short-term and long-term
    needs, familiarity with capital market history, and
    expectations
    2. Examine current and project financial, economic, political,
    and social conditions - Focus: Short-term and intermediate-
    term expected conditions to use in constructing a specific
    portfolio
    3. Implement the plan by constructing the portfolio - Focus:
    Meet the investors needs at the minimum risk levels

    4. Feedback loop: Monitor and update investor needs,


    environmental conditions, portfolio performance
    The Portfolio Management Process

    1. Policy statement
    specifies investment goals and
    acceptable risk levels
    should be reviewed periodically
    guides all investment decisions
    The Portfolio Management Process

    2. Study current financial and


    economic conditions and forecast
    future trends
    determine strategies to meet goals
    requires monitoring and updates
    The Portfolio Management Process

    3. Construct the portfolio


    allocate available funds to meet
    goals and minimize investors risks
    The Portfolio Management Process

    4. Monitor and update


    revise policy statement as needed
    modify investment strategy
    accordingly
    evaluate portfolio performance
    The Need For A Policy Statement

    Understand and articulate realistic investor


    goals
    needs, objectives, and constraints
    financial markets and risks of investing
    Constructing A Policy Statement
    What are the real risks of an adverse
    financial outcome, especially in the short
    run?
    What probable emotional reactions will I
    have to an adverse financial outcome?
    How knowledgeable am I about investments
    and markets?
    Constructing A Policy Statement
    What other capital or income sources do I
    have? How important is this particular
    portfolio to my overall financial position?
    What, if any, legal restrictions may affect
    my investment needs?
    What, if any, unanticipated consequences of
    interim fluctuations in portfolio value might
    affect my investment policy?
    Standards For Evaluating
    Portfolio Performance
    Benchmark portfolio
    risk and return
    Matches risk preferences and
    investment needs
    analysis of risk tolerance
    return objective goals
    Realistic Investor Goals
    Capital preservation
    minimize risk of real loss
    strongly risk-averse or funds needed soon
    Capital appreciation
    capital gains to provide real growth over time for future
    need
    aggressive strategy with accepted risk
    Current income
    generate spendable funds
    Realistic Investor Goals
    Total return
    capital gains and income reinvestment
    moderate risk exposure
    Investment Constraints
    Liquidity needs
    near-term goals
    Time horizon
    longer time horizon favors risk acceptability
    short time horizon favors less risky investments
    because losses are harder to overcome in a short
    time frame
    Investment Constraints
    Tax concerns
    interest and dividends taxed at investors
    marginal tax rate
    capital gains may be unrealized
    basis and gain or loss realized
    revisions to capital gains tax rates
    tradeoff with diversification needs for
    employers stock holdings
    Legal and Regulatory Factors
    Limitations or penalties on withdrawals
    Fiduciary responsibilities -
    prudent man rule
    Investment laws prohibit insider trading
    Unique Needs and Preferences
    Personal preferences - socially conscious
    investments
    Time constraints or expertise for managing the
    portfolio may require professional management
    Large investment in employer may require
    consideration of diversification needs and
    realistic liquidity
    Institutional investors needs
    Constructing the Policy Statement
    Objectives - risk and return
    Constraints - liquidity, time horizon, tax
    factors, legal and regulatory constraints, and
    unique needs and preferences
    Developing a plan depends on understanding
    the relationship between risk and return and
    the importance of diversification

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