Cracking the facts
What is ROI?
Knowing your ROI will make you a better investor and lower your risk. But how do you calculate your ROI?
What is ROI?
Knowing your ROI will make you a better investor and lower your risk. But how do you calculate your ROI?
What is ROI?
Return on investment (ROI) is basically the amount of money you won or lost out of your total investment. Simply stated, ROI measures the amount of return on an investment, relative to the cost of the investment.
ROI is a popular metric among investors because of its versatility and simplicity. The calculation itself is not too complicated. The ROI is a ratio between the profit you make on your initial investment over the original cost.
Knowing your ROI is useful for measuring the profitability of your investment and will take the guesswork out of making future investment decisions. ROI allows investors to easily compare different investment options, no matter the length of time, the cost or the investment type. This could be the ROI on a stock investment, the ROI a firm expects on expanding its facilities, or the ROI generated in a real estate transaction.
By understanding how ROI works, an investor can separate low-performing investments from high-performing investments. With this approach, investors and portfolio managers can attempt to optimise their investments. For example, if you are presented with other opportunities with higher ROIs, it can help you eliminate or choose the best options. Additionally, investors can also avoid negative ROI, which means a net loss.
What is ROI?
ROI allows investors to easily compare different investment options, no matter the length of time, the cost or the investment type.
While there are advantages and disadvantages to using ROI when evaluating an investment, it can give you a quick analysis of possible profitability. Knowing your ROI can help you select the best options when charting your investment journey.
Explore nestegg to learn more about investing money.
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