Alexandra twin

Investment Analysis Explained: Definition, Types, and Importance
By 
ALEXANDRA TWIN


Updated May 17, 2022
Reviewed by 
CIERRA MURRY
Fact checked by 
SUZANNE KVILHAUG
What Is Investment Analysis?
Investment analysis is a broad term for many different methods of evaluating investments, industry sectors, and economic trends. It can include charting past returns to predict future performance, selecting the type of investment that best suits an investor's needs, or evaluating individual securities such as stocks and bonds to determine their risks, yield potential, or price movements.
Investment analysis is key to a sound portfolio management strategy.
Understanding Investment Analysis
The aim of investment analysis is to determine how an investment is likely to perform and how suitable it is for a particular investor. Key factors in investment analysis include the appropriate entry price, the expected time horizon for holding an investment, and the role the investment will play in the portfolio as a whole.
In conducting an investment analysis of a mutual fund, for example, an investor looks at how the fund performed over time compared to its benchmark and to its main competitors. Peer fund comparison includes investigating the differences in performance, expense ratios, management stability, sector weighting, investment style, and asset allocation.
In investing, one size does not fit all. Just as there are many different types of investors with unique goals, time horizons, and incomes, there are investment opportunities that match those individual parameters.
Strategic Thinking
Investment analysis can also involve evaluating an overall investment strategy in terms of the thought process that went into making it, the person's needs and financial situation at the time, how the portfolio performed, and whether it's time for a correction or adjustment.
Investors who are not comfortable doing investment analysis on their own can seek advice from an investment advisor or another financial professional.
KEY TAKEAWAYS

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  Investment analysis involves researching and evaluating a security or an industry to predict its future performance and determine its suitability to a specific investor.
  
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  Investment analysis may also involve evaluating or creating an overall financial strategy.
  
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  Types of investment analysis include bottom-up, top-down, fundamental, and technical.