Rate of Return
The rate of return is the percentage of money that an investor will receive back on their investment over a specified period of time. The rate of return includes both the capital gains and the income that an investment generates.
To calculate the rate of return, simply divide the total amount of money earned from the investment by the original amount invested. This will give you a percentage that represents the rate of return.
For example, if you invested $1,000 in a stock and it increased in value to $1,500 over the course of one year, your rate of return would be 50%. This means that for every dollar you initially invested, you earned an additional 50 cents in return.
It’s important to note that the rate of return is not always linear. This means that if you invest $1,000 today and it’s worth $1,100 tomorrow, your rate of return would be 10%. However, if it then fell to $950 the next day, your two-day rate of return would actually be -5%.
Over longer periods of time though, such as years or decades, rates of return tend to even out. This is why it’s important to consider investments with a long-term horizon in mind.
