INVESTMENT EDUCATION
How to master your Return on Investment (ROI) in Canada
Why is calculating return on investment (ROI) crucial for Canadian investors? For Canadian investors, a clear investment performance calculation is key to informed decisions. Understanding your return on investment helps you: compare investments, track progress, identify what works, and make smarter decisions.
Understanding your return on investment (ROI) is like having a superpower for your finances. It's your ultimate scorecard, telling you exactly how much profit you've made compared to how much you put in. For every Canadian investor, grasping your ROI definition is the first step towards making informed financial decisions.
At Questrade, we empower you with clarity. This guide walks you through what return on investment means, the return on investment formula, and how to calculate investment returns. So, get ready to gain a clear picture of your investment performance calculation and unlock your portfolio's growth.
What is return on investment (ROI)?
Return on investment (ROI) is a measure of an investment's profitability. It's a simple ratio that shows the profit or loss relative to its cost, expressed as a percentage. This ROI definition allows for easy comparison between different investments and is a fundamental metric in investment performance calculation.
How do you calculate ROI?
Learning how to calculate investment returns is simpler than it sounds! The basic return on investment formula helps you figure out your gain or loss.
ROI = (Current value of investment - cost of investment) / cost of investment ) x 100%
Let's quickly calculate ROI:
- Example: Buy shares for $1,000, sell for $1,200.
- ROI: ($1,200 - $1,000) / $1,000) x 100% = 20%
This fundamental formula provides a clear percentage of your gain.
Why is calculating ROI so important for Canadians?
Calculating your ROI is important because it helps you:
- Compare investments: Easily pit opportunities against each other.
- Track progress: See if you're hitting financial milestones.
- Identify what works: Pinpoint successful strategies.
- Make smarter decisions: Allocate capital strategically.
Real-world examples: applying the ROI formula
You may be wondering how to calculate investment returns in the real world. To bring the numbers to life, let's apply the return on investment formula with a common scenario that will help you clearly calculate ROI.
Example: ETF growth
- You invested $5,000 in an equity ETF.
- Over 5 years, your ETF value grew to $7,500.
- ROI: ($7,500 - $5,000) / $5,000) x 100% = 50%
This example is for illustrative purposes only.
Please note this example doesn't account for ongoing contributions or specific tax implications, which professional investment performance calculation tools (like those in your Questrade statements) track. Log in to your account and navigate to Reports to learn more.
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Optimizing your investment performance
Want to maximize every dollar? Questrade offers the tools and resources designed for superior investment portfolio optimization:
- Diversify wisely: Spread investments across assets, industries, and geographies to manage risk and promote consistent returns.
- Control costs: High fees eat into returns. Questrade's $0 commissions on stock and ETF trades can help boost your return on investment.
- Invest regularly: Consistent contributions, even small ones, can significantly impact your overall return on investment through compounding.
- Rebalance periodically: Maintain your desired risk level by adjusting your portfolio mix regularly.
Understanding and tracking your return on investment is fundamental to achieving your financial goals. It's the clearest way to measure success and refine your strategies. At Questrade, we provide advanced platforms and transparent tools to help easily calculate your investment performance.
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More questions? More answers
The basic return on investment formula does not directly account for taxes. It represents your gross return. To find your net return, you would subtract applicable taxes (like capital gains tax) from your profit, especially in non-registered accounts.
A "good" return on investment depends heavily on factors like investment type, risk, time horizon, and market conditions. For example, a 5% return on a low-risk bond differs greatly from a 5% return on a high-risk stock. So, having realistic expectations is key.
Questrade provides detailed account statements and performance reports within your online account. These show your return on investment over various periods, helping you track your investment performance calculation effectively without needing to manually apply the return on investment formula for every single asset.
