What every sound investor must have at the back of their mind when investing is the Return On Investment (ROI). So what’s the perfect ROI? Is it 20%, 40% or even 100%. That’s what I will answer in this post.
First, you need to know which type of investor that you’re.
Are you a professional investor or an average investor?
Professional investors search for and create investment. They don’t buy investment like everybody does, hence, they tend to look for higher ROI which often comes with more risk. But the more knowledgeable they become, the lesser the risk.
On the contrary, average investors buy packaged investment from institutions or professional investors. They tend to invest in less risky investment which often yield low ROI.
Once you know the category of investor that you fall under, the next thing is to know the investment vehicle that you want to use to grow your money.
What are the common investment vehicles
Basically, every investor have a particular investment vehicle that they focus on. I personally like investing in Tech Businesses, Derivatives and Cryptocurrencies. Although they’re profitable for me, it doesn’t mean they’re the best investment vehicle or the only ones available out there.
Below are five major categories of investment vehicle & asset.
- Businesses: You can invest in both online and offline businesses.
- Real estate: Many people believe landed properties are the best investment vehicle because they are limited, thu ensuring that they appreciate in value.
- Currencies: some prefer to invest and bet against the flunctuation of major fiat currencies.
- Equities: This an ownership interest in another company.
- Commodities: This are raw materials used in the production of other products. Some examples are Gold, Silver, Rice, Maize etc.
- Cryptocurrency: this a completely new type of investment vehicle. They’re programmable asset which tend to be very volatile, and that’s why I like them.
After choosing the type of investment vehicle you want to focus on, the next thing is to know the kind of fees you may incure.
What are the associated fees in the investment?
Whether you like it or not, fees like taxes and commissions will have great effect on your ROI. An investment in Real estate will usually have low tax but you may end up paying high commissions and professional fees. On the contrary, stocks and Derivatives may offer low commissions but you may pay high tax.
You just need to choose an investment vehicle wisely and know the in and out of the fees. Afterthat, you then look at the kind of control that you have on the investment.
Do you actually have control on your investment?
All professional investors want control over their investment. This is because, the more control you have, the more money you can make.
Let me take the Stock and Derivatives market for example. Those who have control are the ones making the big money. They determine the market and manipulate it to their advantage. And that is why it’s called insider trading.
The final validation of your return on investment is Inflation.
Does your ROI beat inflation?
To some people, inflation is a key determinant when it comes to the viability of any investment. If an investment doesn’t beat inflation then there’s no point investing in it. This is because in the long run, your money may end up loosing more value. It may not even be able to purchase assets that it could buy before.
Take for example a country like Nigeria where the inflation rate is 12.5%. An investment in mutual fund that pays 10% annually is not a good investment since it can barely beat inflation. By the time you pay tax and other fees, you will be left with nothing but your initial capital.
The bottom line of this article is that: the type of investor that you’re, the investment vehicle you choose, the fees you pay, the control you have, and the current inflation will determine the best ROI you can get. A rule of thumb is that if the ROI is lesser than inflation, then it’s not a good investment. You should also note that investment with high ROI are usually more risky than investment with lesser RIO.
Thanks for reading this article 😊. If you’ve gained something new, don’t hesitate to tell us what you have learnt and share this article with a friend which you think could benefit.
Bye for now! And until next time, KEEP LEARNING 📖.