Return On Investment and Risk

Return on Investment, or ROI

Is a ratio that measures how well your investment is performing. This ratio is also very helpful when you have multiple investments. You can compare the ROI of each investment and see which is making you money, which is making you less, and which ones you should eliminate.

The calculation is a pretty simple one.

Take your return (or benefit) and divide it by the cost of your investment and then times is by 100 to get your percentage rate. If your results are positive, you have a gain. If your results are negative, you have a loss.

Risk

No one can predict the future and see if your investment will give you a great return. Every investment has some sort of risk associated. Usually, the higher the risk - the higher the ROI. Mutual funds and savings accounts have very low risk, resulting in low returns on investment.