What is return on investment?

    Views 69KOct 14, 2024
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    Key Points

    The investment return rate refers to the ratio between the income from investment and the cost.

    The main factors affecting the investment return rate are investment risk and liquidity.

    Different investment varieties have different potential investment return rates.

    Concept Explanation

    The return rate of investment refers to the ratio between the income from investment and the cost, generally expressed as an annual percentage, which is what we call the annualized return rate. Marx once said, in order to gain a 100% profit, capital dares to trample on all human laws. Here the 100% refers to the investment return rate.

    The factors influencing the return rate include investment risk and liquidity. Returns and risks go hand in hand, seeking high returns often entails high risks. Investment varieties with lower liquidity often require compensation in terms of the investment return rate. For example, the return rate of fixed-term deposits is often much higher than that of current deposits.

    The return rates of common investment varieties

    Bank deposits/money market funds: zero or low risk, with investment return typically within 3%.

    Stock investment: high risk, high return. Taking the performance of the NASDAQ index as an example, the annualized return over the 10 years from 2011 to 2020 was approximately 17%. However, if one enters at a high point, there is also a possibility of short-term losses.

    Fund investment: high risk, high return. Some famous fund managers have achieved long-term annualized returns of over 15%, but there are also funds with negative investment returns.

    How to increase investment return?

    Firstly, risk management is essential to prevent capital loss. Warren Buffett's annualized investment return has exceeded 20% over several decades, thanks to his adherence to three key investment principles: first, preserve capital; second, preserve capital; third, always remember the first and second rules.

    Simultaneously, enhancing learning is crucial. One can never earn money beyond their cognitive abilities, as investing is the realization of knowledge. By continuous learning and broadening one's knowledge base, there is a possibility of improving investment return. The series of investment courses in Futu Education is a good learning choice.

    Disclaimer: The above content does not constitute any act of financial product marketing, investment offer, or financial advice. Before making any investment decision, investors should consider the risk factors related to investment products based on their own circumstances and consult professional investment advisors where necessary.

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