Return on Investment (ROI) Explained

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ROI stands for Return on Investment and is one of the simplest and most versatile ratios to compare the profitability of investments.

The formula to calculate ROI is the profit made on an investment divided by its cost.

ROI = (sale price – cost) / cost

ROI = profit / cost

For example, if Bendigo invests $500 in Penrith Ltd shares and sells them a year later for $600 (a profit of $100), the ROI from the investment is 20%. That is, $100 / $500.

For example, if Bendigo invests $500 in Penrith Ltd shares and sells them a year later for $600, the ROI from the investment is 20%. That is, $100 / $500.

The ROI of an investment can be compared to other potential investments to determine the best way to invest the money.

However, the ROI has a number of shortcomings, including:

  • It does not factor the time it takes to make the return
  • It does not consider intermediate costs (e.g. brokerage) or benefits (e.g. dividends)

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Owen Raszkiewicz

Owen Raszkiewicz

Owen is the Chief Investment Officer of Rask Invest and Founder of Rask. Since founding The Rask Group in 2017 in the hillside suburb of Upwey, Victoria, Owen has overseen the growth of the Rask platform to over 200,000 investor followers. Today, Owen oversees the Rask Analyst team, which helps more than 4,000 Aussies build core portfolios from ETFs and shares, he hosts Australia's biggest investing podcast, The Australian Investors Podcast, appears on Rask's other channels, covering Property, Business and Finance; and leads Rask Education - our education platform which has enrolled over 25,000 Australians into free finance courses. Prior to founding Rask, Owen was an investment analyst at the highly regarded managed funds research business and a writer/analyst for one of the most well-known share market publications. Owen’s formal qualifications include a Master of Applied Finance and Master of Financial Planning from Kaplan Professional, Bachelor of Technology (Information Systems) from Swinburne University of Technology, Advanced Diploma of Financial Services (Financial Planning) and Diploma of Mortgage Broking Management. He's also completed level 1 of the Chartered Financial Analyst (CFA) program.

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