What is Rate of Return?

What is Rate of Return?

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Rate of return is a term used to describe how much money you're making from an investment compared to how much it cost you. It's usually expressed as a percentage. So, for example, if you put $100 into savings, and a year later you have $105, your rate of return would be 5%. It's a way of measuring how well your investments are doing, or in other words, how fast your money is growing.

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3 things to know about Rate of Return

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1. The Higher, The Better: When it comes to the rate of return, generally the higher the percentage, the more money you're making on your investment. So, for example, a rate of return of 7% is better than a rate of return of 3%.

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2. Rate of Return Can Be Negative: If you lose money on an investment, your rate of return can be negative. This means you get back less than you put in.

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3. Rate of Return isn't Guaranteed: In investments, the rate of return isn't guaranteed and can change based on market conditions and performance of the investment. This is why it's considered a risk to invest, as the rate of return could be lower than expected or even negative. Always remember, the potential for higher returns usually also comes with higher risk.

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