What it is
In investing, the rate of return (commonly shortened to RoR) is the change in an investment’s value over a certain period of time. It is expressed as a percentage of the amount that was originally invested.
To calculate the rate of return, use this formula: [Current value - Initial value / Initial value] x 100.
So, if you invested P50,000 in stocks which are now worth P65,000, the rate of return would be:
(P65,000 – P50,000 / P50,000) x 100 = (P15,000 / P50,000) x 100 = 0.30 x 100 = 30% RoR.
Because not all investments actually make money, this percentage can be positive or negative, depending on how the value changed.
What it means for you
When you know the rate of return of an investment, it’ll be easier for you to figure out if you should put your money in it or not. Of course, past performance is never a guarantee of how things will work out in the future.
If you already put money in that product, checking the rate of return can help you see if you’re likely to reach your money goal by your time horizon.
