investor's risks while meeting the needs specified in the policy statement.
The fourth step is the continuous monitoring of the investor's needs and capital market conditions. As and when necessary, the policy statement needs to be updated. Based upon all of this, the investment strategy is modified accordingly. A component of the monitoring process is to evaluate a portfolio’s performance and compare the relative results to expectations and requirements listed in the policy statement.
A carefully constructed policy statement determines the types of assets that should be included in a portfolio. The asset allocation decision determines most of the portfolio’s returns over a period of time. There are no guarantees to success, but maintaining a disciplined approach surely helps.
The writer is associate professor in finance & accounting in IIM Shillong