1, define investment objectives and constraints.

Usually, we need to consider risk preference, liquidity demand and time span requirements, as well as actual investment restrictions, operating rules and tax issues. For example, money market funds are often used as short-term cash management tools by investors because of their good liquidity and low risk.

2. Clarify the expectation of capital market.

This step is crucial, including using historical data and economic analysis to consider the expected rate of return on the holding period investment. Professional institutional investors have a comparative advantage in this step.

3. Define what types of assets are included in the portfolio.

Generally speaking, the main asset types of asset allocation are: money market instruments, fixed income securities, stocks, real estate and precious metals (gold).

4. Determine the boundary of effective portfolio.

Find out the portfolio that can get the maximum expected return under a given risk level, and determine the guiding goal of investment under the condition of risk correction.

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