Investment activity

INVESTMENT MANAGEMENT

Investment management relates to the selection of assets in which funds will be invested by a firm. The assets which can be acquired are divided into two groups: long-term assets or short-term assets.

"Nowadays investors can make a lot of choices. They can own not only stocks and bonds of large companies and government debt securities but also stocks of small companies, stocks and bonds of some foreign countries, floating-rate bonds, swaps, calls, futures contracts. Furthermore, the possibility to purchase these securities became both less expensive and more convenient with the advent of advanced communications and computer works. The challenge to investors is increasing because the investment environment is becoming more and more complex. With the rapid evolution that the investment industry is undergoing, new securities markets, investment management techniques have appeared.

When making decisions with regard to what marketable securities to invest in, how big the investment should be, and when the invest­ment should be made, the investor:

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  Sets investment policy and determines objectives,
  
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  Performs security analysis,
  
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  Constructs a portfolio,
  
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  Revises a portfolio,
  
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  Evaluates the performance of the portfolio.
  

For any type of security, the risk can be reduced by investing in more than one firm. This is called «diversification». An investor with stocks and bonds issued by a number of firms is supposed to have a di­versified portfolio. Diversification does not eliminate all risks. Events like recession, high interest rates, and so on may reduce profits and stock prices of all firms.

1. 
   What is investment management?
   
2. 
   Why has the purchase of securities become less expensive and
   more convenient?
   
3. 
   What securities can an investor own nowadays?
   
4. 
   What is diversification?
   
5. 
   What factors can reduce profit?