Question

What are Investment Portfolio (Investment, Bodie and Kane) steps below:

(a) Setting Goals and Limitations

(b) Determination of Asset Classes

(c) Determination of Assets

(d) Performance Evaluation

(e) Asset Adjustment

Answer 1

(a) Setting Goals and Limitations

This is the setting of the risk-return objectives of the investor based on the investor's investment objectives, ability and tolerance for risk, time horizon and liquidity requirements.

(b) Determination of Asset Classes

The asset classes are selected based on the goals and limitations of the investor.

(c) Determination of Assets

After the asset classes are determined, the securities within the asset classes must be determined while adhering to the same risk-return objectives and goals/limitations.

(d) Performance Evaluation

Periodically, the performance of the portfolio must be measured and compared to the risk-return objectives to identify reasons for deviation and to take corrective action as required.

(e) Asset Adjustment

Over time, the original asset allocations tend to change due changes in the portfolio. The rebalancing of the portfolio should be done periodically to maintain the target asset allocation.