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Return on investment (ROI) is a rough indicator of how profitable an investment is. ROI is determined by deducting the investment’s original cost from its end value, dividing the result by the investment’s cost, and then multiplying the result by 100.

ROI : What Is Your Return On Investment?

The length of an investment is measured in years. You can reach your goals if you understand your return on investment (ROI). It all depends on a variety of variables, including your rate of return, time horizon, taxes, and more. Plan your long-term investing strategy with the help of the return on investment calculator provided by Forbes Advisor.

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Returns on investments

Several elements must come together for your long-term investment aim to be achieved. Along with your investment money and rate of return, this also takes into account inflation, taxes, and your time horizon. You may determine your bottom line and sort through these aspects with this calculator. To view the results in further detail, click the “View Report” option.

Return rate

The compounded yearly rate of return you anticipate from your investments before taxes is this. The sort of assets you choose will have a significant impact on the actual rate of return. The Standard & Poor’s 500® (S&P 500®) had an annual compounded rate of return of 13.8 percent for the ten years ending December 31st 2020, including dividend reinvestment. The S&P 500® returned an average annual compounded rate of return between January 1, 1971 and December 31, 2020, including dividend reinvestment, of about 10.8%. (source: www.spglobal.com). The highest 12-month return since 1970 was 61 percent (June 1982 through June 1983). The 12-month return that was the lowest was -43%. (March 2008 to March 2009). A financial institution’s savings accounts may only yield 0.25 percent or less.

The Calculation of Return on Investment (ROI)

You can determine ROI using one of two techniques.

First method:

\begin{aligned}&\text{ROI} = \frac { \text{Net Return on Investment} }{ \text { Cost of Investment} } \times 100\% \\\end{aligned}

ROI=

Cost of Investment

Net Return on Investment

×100%

Second method:

\begin{aligned}&\text{ROI} = \frac { \text{FVI} – \text{IVI} }{ \text{Cost of Investment} } \times 100\% \\&\textbf{where:} \\&\text{FVI} = \text{Final value of investment} \\&\text{IVI} = \text{Initial value of investment} \\\end{aligned}

ROI=

Cost of Investment

FVI−IVI

×100%

where:

FVI=Final value of investment

IVI=Initial value of investment

The Advantages of Return on Investment (ROI)

The fact that ROI is a comparatively simple statistic is its main advantage. It is simple to compute and grasp intuitively.

ROI has developed into a common, all-encompassing metric of profitability due to its simplicity. It has the same meaning in every situation, therefore as a measurement, it is unlikely to be misunderstood or misread.

In Conclusion

Return on investment (ROI) is an easy-to-understand metric used to determine how profitable an investment is. This metric has some restrictions, including as the fact that it does not account for the holding term of an investment and is not risk-adjusted.

Despite these drawbacks, ROI is a crucial metric that business analysts use to assess and rate potential investment options.

Quarterly ROI

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