How An Investment Strategy Is Developed?

  • Nov 17, 2018 AEDT
  • Team Kalkine
How An Investment Strategy Is Developed?
  • Must have a clear, precise investment objective: A successful investment strategy can be made if an investor has a clear, precise investment objective. While making an investment objective, the investor should take into consideration lot of factors such as the level of income, how much to be invested or capital growth the investor wants to achieve (it should be realistic), and for what purpose. While making an investment objective, the investor also needs to consider the risk appetite, age etc.
  • Timeframe: While making an investment strategy, it is important to determine the investment timeframe. If the investor has a long-term investment timeframe, she/he may have more capacity to go through the market fluctuation and can combat any market downturns. Therefore, he could consider investments that has higher risk / higher return profiles (such as stocks of the company). However, if the investor is considering the investment timeframe to be short, he/she may need to be more cautious. Actually, timeframe can be decided according to the investment objective. If the investor wants to accumulate good amount of income, he should go for longer term of investments, which can give higher returns.
  • Asset allocation or Diversification: Developing an investment strategy, involves the diversification across asset classes in the portfolio built, in order to protect the investor against underperformance in any one asset class. The asset allocation made by the investor shows how cautious or aggressive the investment strategy is. Therefore, the investor should determine in how much proportion each asset classes are to be divided in the portfolio. It is necessary and important to rebalance the portfolio throughout its life to ensure the return desired and also that your asset class weightings continue to be appropriate for the investor. Further, while making an investment strategy, the investor should decide what investments he should make. For example, whether the investor should invest in speculative stocks, small caps or be invested to big, well-established blue-chip companies only. The investor can revisit the investment objectives periodically and can adjust accordingly with the skill level and risk appetite.
  • Liquidity of the fund’s assets: The investors may require money due to any emergency or any requirements. Therefore, while making an investment strategy, the investor should consider the liquidity of the fund’s assets, which means how easily they can be converted to cash to meet the requirements.
  • Fund’s ability to pay benefits and other costs it incurs: The investment strategy should consider this when members retire.
  • Risk Appetite: The investor should have a risk management plan and should stick to it. For this the investors should identify the risks involved in the investment strategy, and how to mitigate or reduce those risks. Risk management is one of the most important steps while developing the investment strategy.
  • Accessing information and assistance: We are currently living in the digital age, where we can access a tremendous amount of information, research and tools that can assist us in making investment decisions. The investors can also seek professional assistance, if we do not have the required expertise, confidence or knowledge to make an investment strategy. This can be done by using some of the tools available, that includes the company research and stock recommendations, technical analysis, economic research to understand macro environment, authentic news services, professional financial planner or adviser etc.


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