What and Why is Investment Needed ?

WHAT AND WHY IS INVESTMENT NEEDED ?

Larger organizations create it for the placement of their pension funds. Financial advisors create it for their clients. To create it, you need a bit of complicated philosophy and calculation. If they are wise and sophisticated, they can reach 15 sheets of size.

Who is this "them"? Declaration of investment They are needed not only for rich people, prone to writing. They are a must-have for all investors. Their strength lies in the fact that when writing an investment declaration, you are forced to declare your investment strategy in writing and make a mandatory investment plan. These are schemes and report forms.

We will not be able to cover one part of everything you need to include in your investment declaration. But as a seed, we can offer you to download, print and fill in blank investment declarations.

The Summary of Investment

The Summary of investment provides an overview of your current financial situation and what you expect from your investment portfolio. It's like an instant picture of the current situation. Update the investment summary every time you balance your portfolio.

Here is the question to be answered :

• What is the asset value in my current portfolio?
• How much money will I invest each month?
• How many years I plan to invest?
• What will my portfolio show after inflation reductions?
• What is the maximum amount of loss I can transfer for a period of three months, one year and five years?
• What is my target asset allocation?
• What will be the reference for my portfolio?
• To answer this question better, it's worth reading the "Portfolio Risk: how much risk can you take on yourself?" And "What is asset allocation"?

When it comes to the last question - select your reference carefully. Suppose you have a portfolio that invests 40% of a large company's shares, 10% of small companies, 30% of bonds, and 10% of shares of foreign companies. No need to use the S & P 500 index as a benchmark for such a portfolio. This is totally incompatible with her. This index is created to track the dynamics of stocks of American companies with large market capitalization. It would be suitable to track only 40% of your portfolio, which consists of relevant stocks, but not for the entire portfolio.

In most cases, you need a standard combination to correlate your overall portfolio success and the success of individual components.

You must also decide the period in which you will assess your portfolio and the investments that make up it. Will you compare with the annual portfolio return benchmark? Results of three or five years? The combination of this period? The best period for most portfolios will be one year, taking into account long-term profitability.

Investment Objectives

The "Investment target" section of your investment declaration is dedicated to detailing what you want to accomplish with your portfolio and for how long.

Answer the following questions:

• What is my financial goal?
• How long will it take me to reach this goal?
• How much should I spend each year to achieve my goals?
• To understand more specifically these issues in more detail, review the "Investment portfolio purpose portion of the cost of living in retirement."

Investment Philosophy

In the "Investment philosophy" section you define yourself everything that is important to you as an investor. This is the theory you believe in and which you will obey.

Here are some questions, answers to be formulated:

• What is my vision of risk?
• What is my vision of the role of basic investment and other investments?
• What is my diversified vision?
• What is my perception of trading?
• What is my perception of cost?
• What is my attitude towards taxes?

Before buying or selling securities, make sure the decisions you make are in line with your investment philosophy principles. If they do not match - ask yourself why. Maybe you should not buy or sell this security? Perhaps your decision is based on the short-term dynamics of this paper? Maybe you are influenced by someone's words or thoughts about the future of the market? Remember that all your decisions are based solely on your investment philosophy.

Criteria for Choosing an Investment

This section contains the rules you choose for your investment. This rule is very different from investors with investors, based on their personal investment philosophy. You can consider this criterion as a numerical expression of your investment philosophy.

Here are some criteria for choosing a shared investment fund:

• Minimum rating for fund category
• Minimum refund amount for fund category for certain period
• The maximum rate of decline in the bear market
• The maximum percentage of the 10 largest companies in the fund
• The maximum percentage of each economic sector is included in the fund
• The maximum factor is the overhead cost of funds
• Minimum amount of fund assets
• The current minimum management management period
• The minimum coefficient of the tax efficiency of funds (the ratio of income of investment funds after paying taxes on income before tax)
• Here are some criteria for selecting individual stocks:
• Maximum price for each stock
• Minimum return on equity
• Minimum free cash flow
• Estimated minimum five-year profit growth
• Maximum rate of loan funds
• Minimum dividend yield
• Minimum market capitalization
• Maximum value of P / E coefficient
• Minimum income growth rate

Each newspaper you will include in your portfolio must match the criteria you have selected. If it does not match anything, ask yourself why. Do you need to change your criteria or is this investment not a place in your portfolio built on the principles of your investment philosophy?

Monitoring Procedures

The "Portfolio Monitoring" section describes the procedures that will be used to monitor the results of your portfolio. Here are your instructions to balance your portfolio and to sell investments that do not fit anymore.

Answer the following questions:

• How often will you track your portfolio?
• How will you determine the return on investment for each asset?
• How will you determine the outcome of the investment in the portfolio as a whole?
• How will you determine whether your portfolio achieves planned profitability?
• How will you determine whether the loss is actually in the range you had planned before?

To determine how well your portfolio performs the task set, use a pre-selected benchmark to evaluate your portfolio. If you know that your portfolio did not achieve planned results on profitability, or that the actual loss is greater than what you set for your own acceptable, your portfolio may need to be adjusted.

However, do not focus only on profitability. First of all, make sure that the reason for choosing one other investment is still there. To do this, check each investment to meet the selection criteria you have set. If each stock or unit of mutual fund investment funds does not meet these criteria more than these criteria, you may have a candidate for sale in your hands. We will discuss portfolio monitoring procedures in more detail in the following sections.

Revised Investment Declaration

Once you've drafted your investment declaration, sign, place the date and return there within a year. Your investment statement is not just an instruction, but also a form of report that will evaluate the effectiveness of your portfolio.

So some basic things to understand about what and why is investment needed, such as :

• You must to know about  The Summary of Investment itself
• You must to know about what is your Investment Objectives
• Investment Philosophy is no less important to learn
• You must to know about Criteria for Choosing an Investment
• If you want to run the investment then you must to know Monitoring Procedures
• and the last is Revised Investment Declaration