Introduction
The capital market is a wider portfolio market that deals with securities. The investment banking process provides a platform for the securities trading. The investors are provided with an opportunity to choose the appropriate financial instrument to choose. The portfolio management provides key elements that are applied by the investors in understanding the capital investment market. Therefore, the study seeks to explore on capital market investment and investment banking.
Portfolio and investment banking process
Investment banking process involves financial institutions that provide assistance to individuals, corporations, and governments in achieving and raising financial capital. This is through underwriting or taking part as the agent of the clients in securities issuance process . The investment banking process is undertaken through assisting companies in mergers and acquisition that is the provision of ancillary services including market making, derivatives and equity securities trading, currencies and fixed income instruments.
Portfolio management is the art and science that is applied in decision-making on issues regarding investment mix and policies. Portfolio construction is based on the matching investments objectives, allocation of assets and ensuring the risks are balanced against the performances . Under the portfolio construction, strengths, weaknesses, opportunities and threats are identified in the trade-offs and investments. This action helps in the attempt of maximizing the returns on any investment.
The Key Elements of Portfolio Management
Asset allocation: the long-term mix of the assets is considered as the effective portfolio management construction. Assets allocations are based on understanding the different nature and types of assets regarding volatility. In assets allocations, investors are more concerned in optimizing returns through investing in different assets that usually have a low correlation to one another.
Diversification: in financial and capital assets investment, it is impossible in predicting winner or loser. The best approach is the creation of investment basket that has broad exposure within the asset class. The term diversification introduces spreading of the investment risks and returns or rewards to the asset class. In the investment banking process, it is difficult in determining a particular subset in the asset class to outperform others . Therefore, diversification provides a platform for capturing the returns of entire asset class of less volatile assets. Furthermore, investors diversify through mixing different securities in different classes, sectors, and geographical regions.
Rebalancing: This is a method that is applied in returning portfolio towards its original allocation targets usually at an annual interval. It helps in retaining risk/return profile of an asset mix for investors. The market movements in trade-offs of assets tend to expose the portfolio to greater risks and hence reducing the returns.
Factors considered in selection of assets classes for portfolio investment
The asset classes are defined as the group of securities that have similar characteristics and hence exhibiting similarity in their marketplace behavior. These securities tend to be subjected to similar laws and regulations. There is three type of asset classes includes equities, bonds and money market instruments. These assets are considered as most liquid asset classes . The alternative asset classes involve real estates, tradable collectibles, and artwork among others. These alternative investments tend to be less liquid as it would take more time to find a buyer and to convert an asset to cash.
The factors considered in asset class selection for portfolio investment includes;
Market performance: investors should consider how securities are trading in the market. This helps in deciding on appropriate portfolio mechanism and strategy to be employed in the capital investment market.
Risk: financial instruments are faced by risks of unexpected change in marketing. The investors are supposed to seek experts to understand the financial instruments properties and trends before investing.
Expected returns: in the selection of asset class for portfolio investment, investors are supposed to identify expectations regarding returns. This would help in taking precautions through rebalancing and diversification.
Capital market instruments and portfolio construction
The capital market instrument is assets classes that are responsible for generation of funds for corporations, companies and individuals as investors. The examples of the capital market instruments that are traded in the market include stocks, bonds, Treasury bill, fixed deposits and foreign exchange.
Capital market investment has two categories, that is, primary and secondary markets. These markets are essential in the securities trading as they define new issues and existing issues. Primary market focuses on the new security issues while the secondary market provides information of the existing security issues. The common capital instrument is founded by the bonds and stocks. The bond market deals with the bond trading that takes different portfolio dimensions such as debts and credits. In the capital market, some securities are more secure and less risky. These financial instruments such as debt securities tend to yield low returns comparing to more venerable and risky securities such as stocks.
The capital markets have different margin in terms of yielding returns on investment as they are faced by different risks factors. The investors assess all the features of the capital market in order to select the best instrument depending on their decisions . In the selection of the capital market instrument investors, consider risk tolerance factors and the returns that are expected. Conducting proper investigation and research would help in choosing appropriately capital market instruments.
Recommendations
The composition of the investment portfolio and capital investment market involves different approaches to enable the investors in making a viable decision. The major concern is ensuring they invest in positive performing securities with lower risk. The capital investment market is volatile and unpredictable. Therefore, it is recommended to investors to make their decision in appropriate securities to invest. Furthermore, asset class differs and investors are supposed to mix the securities in different subsets. This helps in balancing the risks as well as returns not to get to extremes. Diversification across the asset classes helps in distribution of both risks and returns. The investors are supposed to rebalance between the subsets of assets class in order to optimize on expected returns.
The investment portfolio requires investors to identify appropriate rational that is assets allocation, diversification and rebalancing strategy. These strategies enable the investors in developing a clear platform with the aim of increasing their revenues. Furthermore, they enable investors in diversifying all the risk across asset classes. Incorporating more liquid assets and less liquid assets helps in reducing the risk that is experienced in the capital investment market. Therefore, it is essential for the banking process to provide full information to the investors with the aim of enlightening them on risks and returns. Consultations with capital market experts provide analysis of the market performance and hence making investor to come up with a viable decision.
Conclusion
The capital investment market is categorized in primary and secondary capital markets. The common financial instruments include equities and bonds securities. Investors are provided with a portfolio platform to make a viable decision regarding capital investment market and securities trading. The major concerns are directed to improving on higher return and reducing the risks involved in the stock trading. Therefore, capital marketing is a complex trading whereby the investors are supposed to take extra precaution. This helps in working toward improving on revenues and reducing involved risks in the portfolio trading.
References
Greuning, H. v., & Bratanovic, S. B. ( 2009). Analyzing banking risk : a framework for assessing corporate governance and risk management. Washington, D.C.: World Bank.
Snopek, L. ( 2012). The Complete Guide to Portfolio Construction and Management. New York: John Wiley & Sons.
Wendt, K. (2015). Responsible investment banking : risk management frameworks, sustainable financial innovation and softlaw standards. Cham: Springer.
