When evaluating your investment performance, one of the most commonly used metrics is the Return on Investment, or ROI. In its simplest form, ROI measures the profitability of an investment and is an effective way to compare the efficiency of different investments.

What is Return on Investment (ROI)?

ROI is a ratio that shows the profitability of an investment relative to its cost. It's expressed as a percentage and calculated by dividing the net profit of an investment by the cost of the investment.

How is ROI Calculated?

Here's the formula to calculate ROI:

ROI = (Net Profit / Cost of Investment) x 100%

Net Profit is the gain from the investment minus the cost of the investment.

For example, if you invested $5,000 in a venture, and it earned you $6,000 in return, your net profit would be $1,000 ($6,000 - $5,000). Your ROI would be 20% ($1,000 / $5,000 x 100%).

Why is ROI Important?

ROI gives you a clear, easy-to-understand measurement of the profitability of your investments. It can be used to compare the efficiency of different investments, helping you to decide where to allocate your money for the best returns. Keep in mind, however, that ROI does not consider the time value of money or the holding period of an investment.

Lastly, remember that while ROI is a useful tool, it's just one of many metrics used to evaluate investment performance. Factors such as your financial goals, risk tolerance, and investment horizon should also play a key role in your investment decisions.

As always, Vyzer is here to assist as your personal wealth director, guiding you through these metrics and helping you make more informed investment decisions.