Topic 2: Individual Investor Life Cycle and Portfolio

management process
Life Cycle Investment Goals
During an individual’s investment life cycle, he or she will have a
variety of financial goals. Near-term, high-priority goals are shorter-
term financial objectives that individuals set to fund purchases that are
personally important to them, such as accumulating funds to make a
house down payment, buy new car, or take a trip.

Long-term, high-priority goals its typically include some form of

financial independence, such as the ability to retire at a certain age.
Because of their long-term nature, higher-risk investments can be used
to help meet these objectives.
Lower-priority goals it might be nice to meet these objectives,
but it is not critical. A well-developed policy statement considers these
diverse goals over an investor’s lifetime.
Examples: include the ability to purchase a new car every few years,
redecorate the home with expensive furnishings, or take a long,
luxurious vacation.

The Portfolio Management Process

The process of managing an investment portfolio never stops.
Once the funds are initially invested according to the plan, the real
work begins in evaluating the portfolio’s performance and updating the
portfolio based on changes in the economic environment and the
investor’s needs.
 Policy statement it is a road map; investors specify the types of
risk they are willing to take and their investment goals and constraints.
All investment decisions are based on the policy statement to ensure
that these decisions are appropriate for the investor.
Examine current financial and economic and political conditions
it is a process of investing involves assessing the future and deriving
strategies that offer the best possibility of meeting the policy statement
guidelines. In this second step of the portfolio management process,
the portfolio manager studies current financial and economic
conditions and forecasts future trends. Investor’s needs, as reflected in
the policy statement and financial market expectations will jointly
determine investment strategy.
Construct the portfolio with the investor’s policy statement and
financial market forecasts as input, the advisors implement the
investment strategy and determine how to allocate available funds
across different countries, asset classes, and securities. This involves
constructing a portfolio that will minimize the investor’s risks while
meeting the needs specified in the policy statement.
Continual monitoring In the portfolio management process is the
continual monitoring of the investor’s needs and capital market
conditions and, when necessary updating the policy statement. An
important component of monitoring process is to evaluate a portfolio’s
performance and compare the relative results to the expectations and
requirements listed in the policy statement.