Return on investment is a performance measuring tool which evaluates the efficiency of a single investment as well as contrasts the efficiency of numerous investments. This determines whether the company is using its resources efficiently or not. It simply is a profitability ratio. ROI has been a popular profitability tool in past few decades and it fulfils various purposes like capital acquisition, initiatives, programs and traditional financial investment. The reason that it is widely being used nowadays is because of its flexibility.
There is a method for finding ROI and then the question arise, what is Return on investment formula?
It is as follows:
ROI= (Gain from investment - Cost of Investment)\Cost of investment
In the formula above, gain from investment refers to income earned after selling the investment which may be share, stocks or bond.
This formula can be explained with the help of an example, a calculation on ROI formula. If the gain from investment is $10 and the cost of Investment is $8 then the total returns on investment becomes 0.25.
ROI= (10-8)\8= 0.25
The formula has been explained but how can an investor achieve higher ROI in every kind of investments, including fixed income investments? Well yes, achieving higher ROI is possible and it has nothing to do with a person’s luck and skill instead, it has everything to do with building up a better portfolio. In context of fixed income investment, traditional fixed income investments like bonds and money market are not the place to look for yield, fixed incomes investment should be done in the fields like non-public Real Estate investment (land, building and property), variable annuities with guaranteed income options (best for retirement and pension) and institutional leveraged senior secured floating rate investments. Each of these alternatives of fixed income investment possesses separate characteristics and comes with different risks which need to be measured with the investor’s capacity of taking risk.