At its core, investment management involves the analysis, foresight, and further planning of the market situation, which contributes to the competent and rational use of existing capital. Managing investments is like driving a car. If you are an experienced and attentive driver, the trip will be easy and enjoyable — you will get where you need on time and with comfort. If you are a beginner, any intersection will require an extreme concentration of attention and seem like a concentration of hazards.
The more practice, the easier the management process. FinanceWorld professionals are sure that the main thing is to understand the basic principles of investment management and learn how to correctly assess risks, and over time you will learn how to manage investments with the skill of a Formula 1 racer.
What is the investment management goal?
The main goal of investment management is to get maximum profit from investments. The fact is obvious, but do not forget about it. This is achieved in various ways, depending on the type of investment project, the assets, the investor’s temperament.
The basic principles of investment management are:
- Income maximization;
- Minimization of risks.
Project management is a sequence of precise decisions that a responsible person makes on the way to achieving the goal.
In the process the investor:
- Evaluates market prospects;
- Selects the direction of investment;
- Forms an investment portfolio;
- Develops an investment management plan;
- Predicts the development of the project;
- Implements the project;
- Tracks result and adjust the process as needed.
Investment activity has its own immutable rules. Managing the process, the investor necessarily takes into account the dynamics of profitability, payback period, and implementation, the current cost of the project.
With proper management, the project satisfies the following conditions:
- Investment income exceeds the yield of bank deposits;
- Project profitability is higher than the rate of inflation;
- The level of risk is determined in advance;
- Investments have maximum liquidity;
- The tasks of all participants in the process are clearly defined.
A qualified investment manager is an expert in economics, technical analysis, and mathematical modeling, an expert in law and tax.
An investment strategy is synonymous with risk management
A strategy is an implementation scenario that takes into account all the factors that influence the final result.
Strategy 1. Conservative
Such a strategy assumes a minimal risk of losing investments, but also a relatively low amount of income (no more than 20% per annum). In the case of exchange transactions, this is, for example, the purchase of bonds with a fixed price.
Strategy 2. Moderate
It is characterized by an average level of risk and return (up to 50% per year). Such indicators are in stocks of large companies, investments in production, promising start-ups, and other areas that require active participation and economic knowledge from investors.
Strategy 3. Aggressive
The aggressive strategy is a risky game for people with steel nerves and decent assets. These include financial pyramids, untested technologies, the latest market trends with uncertain prospects, start-ups.
How to manage investments
Successful investment management needs to come through the following stages.
- Stage 1. Analysis of investments in the previous period.
- Stage 2. Determination of the total investment in the upcoming period.
- Stage 3. Definition of investment forms.
- Stage 4. Development and evaluation of investment projects.
- Stage 5. Formation of the investment program.
- Stage 6. Implementation of projects and programs.
- Stage 7. Control of program execution.
Competent investment management requires a cold head and a quick response. An ordinary investor does not have to be a financier – engineers, teachers, and former military successfully cope with investments.
Basic knowledge is enough to start investing. Understand the financial instruments, read blogs and research investor practitioners, learn the principles of the stock exchange and securities.
It is a complex process, which, however, is vital. Competent financial management is risk control, accurate settlement, and stable income.
