# What Is Your Return on Investment (ROI)?

28 views

A rate of return (ROI) is the monetary profit or loss of an initial investment over a defined period of time, usually in terms of dollars. When calculating the ROI, you are basically determining the amount of money that a person or business makes over time, after all the costs have been deducted. It is an essential part to any financial planning, since it indicates whether or not the money spent will be more than the money made. A company’s or business’ annual return on investment (ROI) is obviously the most basic and most obvious example. But the term “rate of return” can also apply to any financial concept – a calculation, for example, regarding what your life expectancy will be after you have reached a certain age, or what the value of a certain property would be at some point in the future. In these cases, a specific figure like the ROI is actually a good starting point, rather than a blanket average.

The standard deviation, which compares the sum of individual investment returns over time, is another useful tool for evaluating return on investment. The deviation is used to compare changes in standard deviation with changes in the average returns over the long-term period. The standard deviation is different from the standard deviation in that it takes into account the number of periods studied, instead of simply averaging the results over all periods studied. This allows for more accurate evaluation.

Another useful calculator is the compounding factor. By inputting a few numbers, such as the current balance of your account, and the amount you expect to invest over the next ten years, you can calculate your compounding effect. For example, if you expect to make two payments per year to your retirement account, then your annual compounded return will be two percent. If you were to calculate this feature using only annual average returns, then you would get a much different result. By varying your inputs, you can see how changing any one factor can significantly impact your annual return on investment.

The beta or gamma distribution is used to evaluate overall performance over time. The beta distribution is based on the arithmetic mean of expected returns over the included sub-periods. By varying the number of sub-periods and the rate of return expected over those sub-periods, the beta distribution can give a range of possible outcomes, rather than a single outcome. Using the gamma distribution, the result from each sub-period is multiplied by the standard deviation to give the result over the cumulative total. The result from the gamma distribution can give you a general idea of what your final value will be over time, but you should use a more sophisticated model for your individual investments.