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An investment analysis is a process of examining the potential of an investment opportunity, given current and projected economic conditions. This process of assessment often focuses on considering the potential for increases and decreases in the value of the investment, the ratio of earnings to the amount of resources necessary to acquire and maintain the investment, and how well the opportunity fits with the personal financial goals of the investor. While an investor may choose to conduct this type of analysis personally, many choose to work with a fund manager or an investment advisor to ensure the accuracy of the assessment.
There are a number of benefits to engaging in the process of investment analysis. One has to do with avoiding the purchase of assets that are not likely to provide the level of return that the investor considers desirable. This may include sidestepping investments that are likely to experience prolonged periods of downturns as well as opportunities that may experience some amount of growth, but not enough to aid in the accomplishing of short-term or long-term investment goals. By avoiding less than desirable investments, it is easier for the investor to focus attention on opportunities that are more likely to be in his or her best interests.
The actual process of conducting an investment analysis will vary slightly from one type of opportunity to the next. In the case of stocks and similar securities, looking into the past performance of those assets and identifying how they responded to different trends in the marketplace is very important. At the same time, accurately predicting upcoming market trends is equally important, since that activity will often influence the type of return generated by a particular security. Assuming the degree of risk associated with a given stock or commodity is considered acceptable by the investor, the investment analysis may provide all the information necessary to make an informed decision on whether to buy, hold, or sell a given security.
With real estate investments, the goal is to understand the current market value of the property and what factors may impact that value in the future. For example, the property’s location often plays a role in determining if the real estate will appreciate or lose value over the years. Understanding what factors underpinned the current value in the past, and comparing those factors to projected changes in the area will make it much easier to conduct an effective investment analysis, allowing the investor to determine if acquiring the property is likely to produce the desired results.