Return on Investment or ROI

What is Return on Investment or ROI?  If you have money sitting in a bank savings account, what does it earn?  More than likely significantly less than 1%.  But, lets just say 1% for this example, and you have $10,000 sitting in that interest-bearing account.  At the end of the year, what will it earn?  In case you didn’t know, ROI is usually calculated annually.

Well, check my math please, but $10,000 should return $100 in 1 year [$10,000 x .01 = $100].  That means a 6% return should give me $600, and a 15% return should give me $1500 in 1 year.

What if I invested that $10,000 into a vehicle that will return 15% in 6 months, and it was secured?  I would still receive $1500, but the estimated annual yield would be 30%, right?  Why? Because, I could turn around and reinvest that money in that same vehicle returning 15% for another 6 months and receive another $1500 [$1500 + $1500 = $3000.  $3000 / $10000 = 30%]

Let’s use different numbers….

You have $3500, and you can invest (i.e. lend) that money to receive 6% in 2 months.  What will it return or what is the ROI, and what is the annual yield or APY?

$3500 will return $210.  You will receive $3710 (your original investment and the 6% ROI).  Assuming you reinvest that same $3500 every 2 months in the same vehicle, that should be $210 x 6 months = $1260. Or, $1260/$3500 = 36% yield.

I’m just trying to keep it simple.  There is a lot more calculations that can be done.

***Always check with your financial advisers before making an investment***

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~ by Llew Quinol on September 24, 2015.

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