One key metric in achieving this goal is understanding your investment rate or the return on investment (ROI) you get from your investments. ROI is a commonly used profitability ratio that measures the profit generated by your investment. Read more to understand how to calculate your investment rate and determine a good rate of return on your investment.
Calculating your personal investment rate
The process of knowing the rate of your investment is quite simple. Before you start, make sure you have the necessary data on hand, which consists of the initial investment and the final value of your investment. To calculate your investment rate, you can use the following formula:
- Subtract the initial amount of money you invested from the final value;
- Divide this total by the cost of the investment;
- Multiply the figure by 100.
To put it simply, here is the formula for calculating the overall rate of your investment:
Investment Rate = (Final Value – Initial Investment) / Total cost of the investment * 100
This will give you a percentage that represents the return on your investment. You can also use online financial calculators to make this calculation quickly and easily. After all, doing it with the right tools reduces the chance of human error.
What is a good rate of return?
You have got what it takes to calculate the investment rate. But then again, what is a good rate of return? The answer will depend on several factors, including your risk appetite, investment horizon, and financial goals. It’s essential to consider these factors when evaluating the performance of your investments.
For instance, if you have a high-risk tolerance and a long-term investment horizon, you may be more willing to accept a higher level of risk in exchange for the potential for higher returns. On the other hand, if you have a low-risk tolerance and a shorter investment horizon, you may prefer investments with lower risk levels in exchange for lower returns.
Different investment vehicles also have different rates of return. For example, stocks and mutual funds tend to have higher potential returns but also come with a higher level of risk. On the other hand, bonds and cash equivalents tend to have lower potential returns but also come with a lower level of risk. Researching and choosing investment vehicles that align with your goals and risk tolerance is essential.
Using your personal investment rate, you can evaluate how your investment strategy or approach contributes to your financial goals. Keeping track of this key metric helps you make informed decisions about your investments.
It’s also important to remember that past performance is not necessarily indicative of future results, and it’s essential to diversify your investment portfolio to spread out risk. By being mindful of these factors, you can work towards achieving your financial goals and maximizing your personal return on investment.
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With a period of no more than 18 months, you have the valuable opportunity to rake up an average investment rate of 7.09%. You will only have to register for an account and fill in personal details, make an initial deposit, and then you are good to go. Find out more on Funding Societies’ official website!