Many people choose not to save at all because they find the whole process of investing, saving for their retirement to be overwhelming.

To understand this concept, we must know what investment is and why it is so important.

Why Investment Process Is Important?

Investment is a conscious act that involves the deployment of money in assets and securities by financial firms with a view to obtaining a target return in a specific period of time. Or to make it even simpler to understand we can say investing is like taking some resource and advancing it, there’s taking something important and increasing its value and with that kind of definition you’ll find out that investing is pretty common.

Investment is very important in today’s life. Inflation is the main reason why people need to invest, it causes the increase of consumer goods price in simple terms the value of money gets depreciated by time. Once a wise woman said, “Investment is important because if you cannot get your money to work for you, you will always keep working and will never get to retire.”

7 Important Steps of Investment Process

Investment process is all about planning on where and when to invest. It is a set of guidelines that govern the behaviour of investors in a way that allows them to remain true to the principles of their investment strategy, which are the key principles that they hope to facilitate superior performance.

The investment process involves careful study and analysis of the various asset classes and the risk-return ratio attributed to them. Warren Buffet rightly said that never depend on a single source of income, make an investment to create a second source.

Before investing, you must know the process of investment. So we have broken the importance of investment process.

Step 1: Meeting Investment Requirement

a) Adequate provides Necessities of life including funds for meeting adequate financial needs.

b) Adequate protection against various common risks (such as illness, disability, death)

Before you even start investing you need to meet certain investment prerequisites that is you need to adequately provide for necessities of life that are emergency funds or emergency cash funds. You’ll often hear people and experts say that you should have six months set aside, six months’ worth of living expenses set aside for emergencies.

You might lose a job or your car might break down, you might have to fix that, you know the roof on your house might be leaking and you might need to fix that. There are all kinds of emergencies that pop up and you need to have an emergency reserve but certainly losing a job can be a big problem and it does happen.

You also need to have adequate protection against various common risks such as death illness and disability, so basically we’re talking about insurance like life insurance for death protection.

Now if you don’t have any dependents you don’t need life insurance you but if you have a family if you have someone that is counting on you for support you need life insurance and health insurance, no matter how healthy you are now you could get sick at any time and health insurance is a necessity.

Disability insurance another thing that people tend to forget, you may be in a profession where you know you can break a leg and can work but you can still become disabled and not able to work and for people who are in physical jobs you could be a plumber, you could be a carpenter you could be a truck driver if you become injured if you break a leg if you break an arm you may be out of work for quite a while in fact you’re far more likely to become disabled than you are to die so it’s important to have disability insurance so before you even start the investment process you need to look into these things.

Step 2: Establish Investment Goals

a) Accumulating retirement funds

b) Enhancing Income

c) Saving Major expenditure

d) Sheltering Income from Taxes

In order to establish our investment goals, we have to think about what it is we want to do? Are we trying to save money for retirement? Are we saving for a big Expenditure like buying a house or sending a child to college? Are we trying to shelter our income from taxes?

Okay, nobody likes taxes but some people are not in a high enough tax bracket to worry about that although all of us can try and shelter some of our income from taxes by investing in retirement accounts like an EPF or PPF that allows you to shelter some of that income from taxes you get a deduction today and you won’t pay the tax until you withdraw when you’re retired after you’ve established some goals.

For example, an engineering degree that costs around 12 lakh may cost around 25 lakhs in the next 20 years assuming that a child is on their own. Achieving these financial goals now different goals require different financial planning.

Suppose you wish to buy a house in the next five years that will require investment in a suitable investment plan for a period of five years so that when you wish to buy a dream house you have already accumulated the desired funds for your purchases.

Step 3: Adopting an Investment Plan

a) Always Develop a written investment plan

b) Try Specifying the target date and Risk Tolerance for each Goal

Let’s say that the market is down right now but you’re not going to stop investing in stocks in fact you might want to increase my investment in the stocks market because prices are low and you’re not going to be using that money for a long time so you want to have a plan.

It’s also a contract between you and your financial professional, if you’ve written an investment policy statement and your financial professional is investing in securities that don’t meet with your investment policy statement perhaps you have a moderate level of risk and the person is investing in very high-risk technology stocks.

Well if they lose money for you then you may be able to have some course of action. It also helps the professional to do well for you because it’s hard to invest someone’s money when you don’t know what it is they want. So a clearly written investment policy statement is important.

Step 4: Evaluating Investment Vehicle

a) Assess potential return and risk

While evaluating the value of investment vehicles you will find different types of securities stocks bonds. Here the general category of stocks but there are a lot of different kinds of stocks, there are blue-chip stocks those big companies that have been around a long time.

They’re very stable, they tend to generate solid income they tend to pay sufficient dividends, but they don’t tend to have a lot of growth because they’re very large companies then you have smaller companies.

Step 5: Selecting Suitable Investments

a) Research and gather Information on Particular Subject

b) Make investment Selections

Microsoft is probably a blue-chip company out it’s a very large well-established company but thirty years ago Microsoft was a small emerging company that had a lot of opportunities to grow, It’s harder for Microsoft or Reliance to grow now because it’s such a large company, the same with Apple, Samsung, Tata Motors, General Motors or General Electric or Ford.

These are big companies, they’re not going to grow that rapidly but there are some smaller and midsized companies that have a lot more room for growth.

Once you’ve selected what you think are suitable investments you need to gather information and do some research on those investments so you have some general categories of risk and return what you might like to invest in.

Then you start doing some analysis on these individual companies and then you make some investment selections.

Step 6: Constructing a Diversified Portfolio

a) Use Portfolio compromising of different Investments

This step is called Diversification, it can increase the returns or decrease the risks. Construct a diversified portfolio, so portfolio management is important. In personal finance when we talk about diversification we’re not just talking about buying a lot of stuff we’re talking about buying things that tend to have different attributes.

If you buy all technology stocks or if you bought all computer stocks when the computer industry is doing well your portfolio will do well, when the computer industry is doing poorly your portfolio will do poorly.

Never put all of your eggs in one basket. So you don’t want to just have a lot of different stocks, you want to have different kinds of stocks, you might want to have food companies, you might want to have some technology stocks, and you might want to have some transportation stocks, some financial stocks.

If you’ve watched the market at all, sometimes financial companies do very well, banks do extremely well and then there are times when they do extremely poorly sometimes manufacturing companies are doing very well sometimes they’re doing poorly, different kinds of companies do well in different types of environments. In order to be on the safe side, you must have a Diversified Portfolio.

Step 7: Portfolio Management

a) Compare Actual Behaviour with Expected Performance

b) Take Corrective Action when Needed

Food companies and companies that produce necessities tend to be much more stable, people have to eat even if the economy’s not that good but when it comes to technology or let’s say Airlines, airlines would be a good example if the economy is not good people don’t travel as much for the holiday they don’t travel as much on the business they get hurt but people still need to eat but you’d like to help hold companies like Airlines or hotels in your portfolio because when the economy is booming they tend to do very well.

Once you’ve set up that portfolio you need to do portfolio management, you need to see has it performed as well as it’s expected, have things changed? Do we need to take some sort of corrective action? Do we need to sell some of these securities and add other securities to the portfolio? There’s a process for going through this and the successful investor whether it’s an individual or whether it’s an investment professional, they will follow these basic steps in order to get the best possible outcome.

It doesn’t ensure that you’re always going to be right but when you have a plan and you stick to it and keep evaluating your plan you’ll do much better than the person who just essentially is like a gambler at a casino that just puts their money on red or black on roulette and just hopes the number comes up. If you have a plan and a strategy you’ll do much better.

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What is Asset Management?

In the fewest possible words, asset management incorporates the development, maintenance, and sale of assets in a cost-effective way. The term – third-party asset management, most commonly used in finance, refers to firms and individuals that manage other entities’ assets.

Know More About Asset Management

The broad term ‘asset management‘ describes the management of assets or investments on oneself or on behalf of others. The process typically includes two essential priorities – asset appreciation & lowering risks. As investment minimums are pre-determined, this service is most commonly hired by financial intermediaries, individuals, corporations, and government entities with high net worth.

While managing your assets, your prime objective should be ‘growing your company’s portfolio’ by determining what investments should be made and which ones to avoid. For this, you need to conduct thorough research utilizing both micro and macro analytical tools. This generally includes statistical analysis of growing market trends, financial talks with company officials, and everything else that can help achieve the determined target of asset appreciation.

Note: The advisors or asset managers, most commonly, invest in products, such as equity, mutual funds, fixed income, commodities, real estate, and other investment platforms.

Asset Lifecycle Management

The first and foremost focus of asset management is not entirely on the assets. The actual priority is the value they deliver to the businesses that own them, over their entire lifecycle, from the pre-purchase stage to the time of disposal.

The efficient management of the asset lifecycle requires optimizing the profits while minimizing the costs of purchase, operation, maintenance, renewal, and disposal of assets.

Why are Company Assets Important?

Assets, such as equipment and property, are valuable items that your company leases or owns to operate. They can also be called a means of getting value for your business, for example, customer relations, intellectual property, and goodwill.

Assets are highly important for any company as they can help:

• increase value
• generate revenue
• facilitate the business operations

A company can anytime sell or transfer assets or utilize them to lower tax deduction, and increase business efficiency.

Every company requires keeping track of its assets as they play an important, central (to be precise) role in how the business operates. By keeping track of your company assets, you get accurate information on what assets are available with you and which ones can be utilized to get optimal returns. For daily operations, asset management is highly essential and should not be ignored. Let’s discuss some reasons why you should properly manage your assets and their records.

In-depth Knowledge of Assets is Important

Many businesses have now started realizing how much productivity they can lose if they don’t manage and keep track of their assets. Counting the number of assets and entering them into an excel sheet is not enough for adequate asset management. Getting in-depth and detailed information about an assets’ value over their lifecycle helps companies to save money and allows them to get the best from each asset.

If you know exactly where your assets are, who holds them, and what their condition, you can efficiently eliminate problems that cost you a lot, along with preventing duplicate purchases and last-minute requirements of maintenance. Having complete information of the valuable assets with its 24X7 availability to employees can enhance accountability and efficiency in keeping track of the same.

Stay One Step Ahead of Your Competitors

Using a powerful asset management system for your business lets you focus on more on aspects that can boost your business growth, such as marketing, sales, and customer service. Complete knowledge of your assets helps you take the lead in the industry and understand what should be done to prepare for the future.

For businesses that hold inventory and sell it further, they frequently obtain real-time information on what items they have in stock, what items are getting low in numbers, and at what time they need to reorder specific items. Similarly, you don’t want your customers to approach your competitors just because you’ve run out of stock. This way, proper management of assets helps many companies stay one step ahead of the competitors.

Increase in Workflow & Productivity

Efficient management and accurate tracking of assets have also been proven to help improve workflow & productivity, reduce record losses (in case of a natural disaster), employee theft, and eliminate the incidents of misplaced or lost assets that are generally called ghost assets. Proper asset management allows effective & fruitful planning within your company, making employees more responsible and accountable.

Loss of Assets due to Theft

Adding to the aforementioned reasons, your company surely owns several small-size but very precious assets, such as expensive equipment, desktops, laptops, and tablets. If one of such small size items get stolen one day, it would be very difficult to notice its absence, at least for a few days after its theft. When something like this happens, and you don’t get to find that item for long, it is stolen. Here, had you maintained proper records of your assets, you could have got to know about the missing ones and proceed further accordingly.

Loss of Assets due to an Environmental Disaster

In case your company, unfortunately, suffers a catastrophic loss ever, do you have accurate records of your assets that you can later match with the lost ones? If no, it is high time to get robust asset management and tracking system so that you would, at least, know what asset items are lost and how many are left with you.

“In 1998-2017 disaster-hit countries also reported direct economic losses valued at US$ 2,908 billion, of which climate-related disasters caused US$ 2,245 billion or 77% of the total.” Source

Investors Consider Visible Assets

If you want your company to attract more investors, you should start making organized reports of your assets because that’s what most investors are concerned about. Say you have a substantial value in fixed assets which is visible on your Balance Sheet, would you be able to show the numbers with solid reports if they ask you to? If you fail to prove what your balance sheet says about your assets is true, the interested investors will find a lack of credibility in your company.

Bring More Transparency and a Centric Platform for Asset Reporting

Experts keep on suggesting us to do more with less, and the same even applies to asset management. Have a system to record assets where multiple departments can enter never-ending asset information consistently in an easy-to-understand format. Business processes can become streamlined with company-wide communication and transparency.

For companies having branches throughout the globe, a special centric system will allow all the employees to share asset information on one single platform, promoting more transparency and ease in asset management.

Conclusion

The importance of asset management is as much as the importance of employees for a company. Managing assets efficiently helps in locating where the assets are being used and if there’s a need for change. This also improves the accuracy of the check-in/check-out system; if any of your employees use an asset, you will have it in your notice, and knowing this, employees will return the assets on time to precisely the department it belongs to.

Are you thinking about the future? It also helps identify possible risks that might arise due to the utilization or ownership of certain assets. At times, you might see an item that isn’t performing as per your expectations or has never been used, or frequently requires repairs; tracking your assets helps you identify which assets are bringing profits and which ones can harm your company’s financial health throughout their lifecycle.

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