When making any investment, it is always very important to find, identify and analyze these three parameters in it.
The presence of these three parameters determines that this is an investment. That is, if you do not find one: reliability, profitability or liquidity, then this is not an investment.
Let us analyze each of these factors separately and in detail. Remember in any investment you need to find and analyze all three of these factors.
On the topic of these factors, I have prepared for you three articles, each factor will be examined separately and today we talk about the first.
Return on investment
My brief definition of return is the percentage received on the body of the investment.
Why do not I use the word – earned by the body, because you can get a minus, that is, the investment will no longer be profitable, but it will also be easy to calculate its loss ratio, just like profitability, the rules are the same.
And now let’s recall the investment term. To calculate the profitability, we can consider: daily profitability; profitability per year; profitability for the entire investment period; both planned and actual. That is, you can set a planned period of 2 years, but your investment for various reasons will be delayed and will be completed only after 3 years, sometimes we considere the planned and actual returns and compare the indicators.
I believe that the percentage of profit from it should be considered when the investment is completed. That is, for any investment period as short-term medium and long term. Profitability should be calculated when it is completed.
Why? For example, your investment is the participation of money in the business of your old friend. He has a small cafe, he asked you for $ 10,000 a year and promised to pay $ 1,000 a month as a percentage, and at the end of the year to return 10,000 that he borrowed from you. Within 3 months he regularly pays you 1000 each, you accept the money thinking that it is – earned 30%. Here you are caught.
This is an imaginary joy, it is incorrect and not supported by facts, since the body of the investment has not yet returned to you and now you can consider income in the amount of 70% loss.
For example, your friend did not insure the cafe and it may catch fire due to some accident and burn out, and then both his and your investment would be considered lost or would go into the category of some very long-term ones with a very low probability of a return.
I hope you not only understood what profitability is, but also the most important thing – you understood when it should be considered.
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