What is ROI?

By Grace

What does ROI mean? In personal finance and investment terminologies, ROI simply means the “return on investment”. An investor should analyze the possible return of his investment before he make an investment decision. ROI will determine the investment offers if it is worth trying or not. If you are planning to double your money in 5 years, you should know the interest to be earn every year. Whether you’re investing in stock market, mutual funds, bonds, real estate, forex and business, you should understand that these types of investments have different period when getting the ROI (return on investment).

Say for example, in the stock market and equity mutual fund investing, you can get the return on your investment in stocks very fast because this is high risk. But it doesn’t mean, you can get your ROI whenever you want. It maybe a little bit longer to get ROI in the stock market especially you picked the wrong or bad stocks.

What is ROI Definition in Wikipedia

Return on Investment (ROI) is the benefit to an investor resulting from an investment of some resource. A high ROI means the investment gains compare favorably to investment cost. As a performance measure, ROI is used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments.[1] In purely economic terms, it is one way of considering profits in relation to capital invested.

Source: https://en.wikipedia.org/wiki/Return_on_investment

According to Investopedia, the ROI or return on investment means… “A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments.”.

Source: http://www.investopedia.com/terms/r/returnoninvestment.asp

What is ROI and Its Importance?

Therefore you need to analyze the ROI of an investment if it is efficient. Some investments are at low risk and some are at high risk. Ask yourself, if you will take high risk, can you get the return on investment ROI very fast? If yo take low risk investments, you expect to get your ROI a little bit longer.

It is very important to track the ROI return on investment. An investor will pull out his investment if the investment are not helping him to grow his money. You should invest because you want to maximize your investment growth overtime. Therefore, you should find an investment that earns high interest rate. A reasonable rate of return on investment is at least 7% annually.

If you want to find out how and when to double your money. Just use the rule of 72. Know the interest earned of our investment and divide them into 72 so that you will know when is your investment capital will be doubled. Example, if your investments is earning 5% per year, your money will be doubled after 14 years. If your total investment is earning 14.4 percent per year, your money will be doubled in 5 years.

Now you know what is ROI and its importance. When you invest, always analyze the possible ROI before you make an investment decision. Find those low risk types of investment but it can help you get your ROI return on investment very fast. Smart investors know how to find them. Share this page with other investors.

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