Investment Management Basics:The first step in investment management is establishing theobjectivesof the investment program. This requires consensus among key stakeholders, such as managers, on what the investment goals are (e.g., risk tolerance, return expectations, liquidity needs).

Without clear objectives, subsequent steps like developing policies or selecting investments cannot be effectively carried out.

Why Consensus Is Important:

Investment objectives must align with the organization’s mission, risk tolerance, and financial goals.

Consensus ensures that all managers are on the same page before developing specific strategies or policies.

Why Other Options Are Incorrect:

A. Ensure employees understand their investment options:Employee understanding is not the first step; it comes later when the investment strategy is implemented.

C. Develop an investment policy manual:This happens after the objectives have been established.

D. Establish criteria for divesting:Divestment criteria are part of the investment policy and are determined later.

References and Documents:

GAO Financial Management Guide:Highlights setting objectives as the first step in investment management.

COSO Framework for Investment Risk Management:Stresses the importance of aligning objectives before policy development.