If you want to double your money, use this return on investment formula. The ROI (return on investment) has many definitions but has only one meaning. Here at investment total finance blog, we discuss everything about finances, business and investment types. And today’s topic is ROI. It is also important to know the rate of return of every investing you made, investments whether in stocks, mutual funds or unit investment trust funds. Which of these investment type will give you the greatest and highest possible ROI?
Definition of ROI – return on investment
ROI simply means the expected gains, the expected return of the invested capital whether it is in your own business, paper assets or other things related to investing.
If there is a return on investment formula to know how to double the money in business investment, there must be also a formula in ROI. To determine ROI, just take a look of this analysis for few moments. Let us analyze when she will get the return of her investment.
Situation: If Grace of InvestmentTotal.com will invest $10,000 in stocks and earn 18% per year. When she can get the possible return of her investment?
Investment Capital: $10,000
Earn Interest: 18% annually.
ROI Time Frame:
Investment Capital: $10,000
1st Year: $10,000 will earn $1,800
2nd Year: $11,800 will earn $2,124
3rd Year: $13,924 will earn $2,506.32
4th Year:16,430.32 will earn $$2,956.48
5th Year: $19,386.8 will earn $3,489.62
6th Year: $22,876.424
After 6 years, the return of invested capital is $12,876,424 or 129% investment gain. That’s how Grace will get her return of her investment.
Return On Investment Formula
Some money expert says, the smartest ROI formula is the rule of 72, which will also be discussed in this article. Just determine the invested years to 72 and the answer will be the required interest that your investment should earn.
Example, if you want to double your money in 5 years your investment should earn at least 14.4% per year. Your money will double due to compound interest.
Reverse the formula, if you are investing your money in an investment vehicle that earn 8% annually, how many years to wait to double your invested capital? (Formula: 8/72= 11years).
How to measure ROI?
An investor can measure ROI by analyzing the interests earn per annum or even in per month. Measuring the return of investment is very important to know when and where to invest your money.
Return On Investment Example
Some example, if you invest $1,000,000 in mutual fund bond fund type, and earn 5% per annum within 8 years, the return of invested capital is $477,455.44
If you invest $1,000,000 in government securities promising to earn 4.5% per year for 10 years. The return of investment is $552,969.42
Another example in business ROI
Operating Expense: $150,000
Total Assets Beginning of year: $380,000
Total Assets End of Year: $420,000
Average Investment in Assets: $400,000
Return on Total Assets: 37.5%
ROI Formula: To get the average investment asset, just add total assets beginning and end of year then divide by 2. That’s how we get $400,000. To get the possible ROI, just divide operating expense by the average investment in assets. That’s how we get 37.5%
The higher the risk the higher the return of your investment. Risks such as time frame or the number of years that your money is invested, world economic crisis, calamities, political issues and among other things that consider as “risk” in investing.
You can use rate of return calculator in other websites so that it is easy for you to analyze if you invest your money or not. Also, the rate of return doesn’t guarantee the best possible return of investment. Past performance of an investment vehicle doesn’t guarantee a good return on your investments.
Investments type that has guaranteed return investments are few, so be careful. In investing, there’s no such thing as “guarantee”. Some say, bonds are good type of investment but still, there is a risk involved. If there is a risk, there is no guarantee.
Do not be lured to quick return investment schemes, some example of an exciting investments are as follows;
Double your money in 2 days, possible high return on investment in few weeks. Return in invested capital will be given right away, duh? Just be smart enough.
Ask the financial expert or the registered financial planner about investing before you decide. They will help and guide you, unwise investing decision can cost you a lot. So be very careful and make your own research and investigation about the companies that offers financial products such as mutual funds or stock brokering.
Thank you for visiting InvestmentTotal.com: a personal finance blog. Learn more financial education by continue reading our topic for “future value formula for annuities”.See Also: Where to Buy Stocks and Bonds