Frank J. Fabozzi, Ph.D., CFA
Adjunct Professor of Finance School of Management Yale University
In this chapter the fundamentals of investing will be reviewed. We will explain these fundamentals in terms of the phases that are involved in investing. These phases include: setting investment objectives, establishing an investment policy, selecting a portfolio strategy, constructing a portfolio, and evaluating performance.
The investment process begins with a thorough analysis of the investment objectives of the entity whose funds are being invested. These entities can be classified as individual investors and institutional investors.
The objectives of an individual investor may be to accumulate funds to purchase a home or other major acquisition, to have sufficient funds to be able to retire at a specified age, or to accumulate funds to pay for college tuition for children.
Institutional investors include
In general we can classify institutional investors into two broad categories—those that must meet contractually specified liabilities ...