What is an investment return?
An investment return is the profit or loss you make on an investment over a period of time. It is calculated by subtracting the original investment amount from the final value of the investment, and then dividing that number by the original investment amount.
For example, if you invest $100 and it grows to $120 over one year, your investment return is 20%.
How to calculate your investment returns
There are a few different ways to calculate your investment returns. One way is to use a simple formula:
Return = (Ending Value - Beginning Value) / Beginning Value
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Another way to calculate your investment returns is to use a compound interest calculator. These calculators can take into account the effects of compound interest, which can significantly increase your investment returns over time.
What factors affect investment returns
There are a number of factors that can affect investment returns, including:
- The type of investment: Different types of investments have different risk and return profiles. For example, stocks tend to have higher returns than bonds, but they also have more risk.
- The time horizon: The longer you invest, the more time your money has to grow. This is because of the power of compounding interest.
- The fees charged by your investment manager: Investment fees can eat into your returns, so it is important to choose an investment manager with low fees.
How to improve your investment returns
There are a few things you can do to improve your investment returns:
- Invest for the long term: The longer you invest, the more time your money has to grow.
- Invest in a diversified portfolio: This will help to reduce your risk and improve your chances of achieving your investment goals.
- Reinvest your earnings: This will help your money grow even faster.
- Choose low-cost investments: Investment fees can eat into your returns, so it is important to choose investments with low fees.
Calculating your investment returns is an important part of managing your money. By understanding how your investments are performing, you can make better decisions about your financial future.
Here are some additional tips for calculating your investment returns:
- Keep track of your investment costs. This includes the fees charged by your investment manager, as well as any other costs associated with your investments, such as trading commissions.
- Track your investment performance on a regular basis. This will help you to see how your investments are performing over time, and to make adjustments to your investment strategy as needed.
- Use a financial advisor. A financial advisor can help you to create an investment plan that meets your individual needs and goals, and can help you to track your investment performance.