【正文】 term and longterm needs, familiarity with capital market history, and expectations 2. Examine current and project financial, economic, political, and social conditions Focus: Shortterm and intermediateterm expected conditions to use in constructing a specific portfolio 3. Implement the plan by constructing the portfolio Focus: Meet the investor’s needs at the minimum risk levels 4. Feedback : Monitor and update investor needs, environmental conditions, portfolio performance Exhibit The Portfolio Management Process 1. Policy statement –specifies investment goals and acceptable risk levels –should be reviewed periodically –guides all investment decisions The Portfolio Management Process 2. Study current financial and economic conditions and forecast future trends –determine strategies to meet goals –requires monitoring and updating The Portfolio Management Process 3. Construct the portfolio –allocate available funds to minimize investor’s risks and meet investment goals The Portfolio Management Process 4. Monitor and update –evaluate portfolio performance –Monitor investor’s needs and market conditions –revise policy statement as needed –modify investment strategy accordingly The Need For A Policy Statement ? Helps investors understand their own needs, objectives, and investment constraints ? Sets standards for evaluating portfolio performance ? Reduces the possibility of inappropriate behavior on the part of the portfolio manager Investment Objectives ? Risk Tolerance ? Absolute or relative percentage return ? General goals Investment Objectives General Goals ? Capital preservation – minimize risk of real loss ? Capital appreciation – Growth of the portfolio in real terms to meet future need ? Current ine – Focus is in generating ine rather than capital gains Investment Objectives General Goals ? Total return – Increase portfolio value by capital gains and by reinvesting current ine – Maintain moderate risk exposure Investment Constraints ? Liquidity needs – Vary between investors depending upon age, employment, tax status, etc. ? Time horizon – Influences liquidity needs and risk tolerance Investment Constraints ? Tax concerns – Capital gains or losses – taxed differently from ine – Unrealized capital gain – reflect price appreciation of currently held assets that have not yet