CHAPTER 3

The Investment Process

The first two chapters of this book examined the characteristics of derivatives, and in particular their relationship to structured products. Anyone wishing to use these financial products in wealth management needs to understand how they work. However, knowledge alone is not enough. Practical experience has shown that the unsystematic, uncoordinated use of financial products fails to produce satisfactory results in the form of higher returns or reduced risk; that is, volatility. A systematic and process-based methodology has a greater chance of success – combined, of course, with knowledge of the products. This chapter sets out to explain the most important elements of an integrated investment process. In combination with the previous two chapters, these discussions form the basis for the use of structured products in wealth management.

Introduction

Given the complexity of the investment process, it is obvious that without an integrated decision-making approach, the management of invested assets will be ineffective. It is therefore unlikely that the use of structured products without a strategic framework will generate long-term growth. For this reason investment decisions should be embedded in a systematic, logical and integrated process. The decision-making process can be broken down into three phases that are repeated periodically (Figure 3.1).

Using a process-based approach, the investment process can be defined as a set of interconnected tasks ...

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