What is Return on Investment? - Marvin Germo

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What is Return on Investment?

By: Marvin Germo | April 29, 2021

When you invest, you get something in return. Although not all the time, investments usually have what they call ROI or Return on Investment. For new investors who want to know more about this term, I am going to share with you some important points that can easily help you understand what it is.

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What is ROI?

A return on investment is the amount you get from investing. It is used to evaluate the performance and efficiency of an investment. It also tells an investor if such an investment is profitable or not. What ROI measures is the return based on the investment cost you invested. ROI is usually presented in a percentage. To calculate this, you can divide the benefit or the return you get with the cost of your investment. ROI is easy to calculate if you have all the amounts you need.

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The importance of ROI

Many new investors don’t know what ROI since. And, because it’s a profitability measure, it’s important that you should know it, whether you are a new investor or not. Knowing ROI is your advantage in many ways. For example, If you know how much ROI a company can give, you can plan your strategies ahead. If the company has a history of giving stable ROI, you can put more investments if you think it’s for the best of your money.

ROI can also help you decide whether it’s good to invest in a company or not. Let’s set an example. If company A offers 5-10% ROI, is it a good investment already? For someone like me who’s already happy to get a 10% return, I would say yes. 10% is already great compared to bank interests at less than 1%. 10% is already big compared to MP2 at 6% in 2020.

Also, if you know more about ROI, you can compare companies. Of course, it’s better to put your money in a company that has a higher ROI. So, if you are planning to invest in more than one company, put more money in an entity that gives a higher ROI.

What’s a good ROI?

A good ROI would depend on an investor’s perception of it. A 5% ROI is already good for those who want to take even small profits. A 10% ROI is already big for some investors. The best rate of ROI would depend on your goal and strategy as an investor. Every investor has a different goal. What you need to do to get your target ROI is to set your goal first. From there, you can find companies that meet your ROI goal. Compare those companies and choose the right companies according to your goals.

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