Q1: What is ROI and how is it calculated?
ROI (Return on Investment) measures the profitability of an investment. It's calculated as: ROI = [(Final Value - Initial Investment) / Initial Investment] × 100%. A positive ROI indicates profit, while negative ROI indicates a loss.
Q2: What is a good ROI percentage?
A good ROI depends on the investment type and risk level. Generally, 7-10% annual ROI is considered good for stocks, while real estate might aim for 10-15%. Higher returns typically come with higher risk. Compare ROI to similar investments in the same category.
Q3: How do I interpret negative ROI?
A negative ROI means your investment lost value. The percentage shows how much you lost relative to your initial investment. For example, -20% ROI means you lost 20% of your initial investment. Always consider the time period when evaluating ROI.
Q4: Does ROI account for the time period?
Basic ROI doesn't account for time, so a 50% return over 1 year is much better than 50% over 10 years. For time-weighted comparisons, use annualized ROI or consider the investment duration when evaluating results.
Q5: What factors affect ROI?
ROI is affected by market conditions, investment timing, fees and expenses, economic factors, and the specific investment type. Always factor in all costs (fees, taxes, etc.) when calculating true ROI.
Q6: How can I improve my ROI?
To improve ROI: reduce investment costs and fees, choose investments with better risk-adjusted returns, diversify your portfolio, hold investments longer to benefit from compound growth, and regularly review and rebalance your portfolio.