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    Return On Investment (ROI): A Helpful Tool for All Your Investment Needs!


    Return On Investment (ROI) is a common tool used to see how an investment did. Most of the members on Brickpicker know about the Compounded Annual Growth Rate (CAGR). There is a formula that goes with CAGR to predict how a set will do for future investments. I always say that the CAGR formula is used before investing. Now here is a formula explaining how your investment did after you made your profit. The formula for ROI is very simple and each part of it will be explained.

    ROI = (Gain from Investment - Cost of investment)/ Cost of Investment

    • Gain from Investment: How much money did you gain from your investment. For example, I spent $400 USD on 2 UCS B-Wings and then sold them for $250 each. My gain from this sale would be $500 USD.
    • Cost of Investment: How much money did you spend on your investment. For example, I spent $400 USD on 2 UCS B-Wings. That is the cost of investment: $400 USD.

    If you do not want to mix up all your numbers here is a simplified version of the equation. ROI = Profit / Cost of Investment

    • Profit: How much money you made from a sale. From the above version, it is $100 USD. My sales totaled $500 USD, but my expenses were $400 USD, thus making my profit $100 USD.
    • Cost of Investment: Same exact description as the one above.

    Now, lets try this out.

    Example A

    Say that you bought one set for $9.99 USD. (This is a retail price) Then you wait three to four years before selling it. You sold it for $27.89 USD.

    ROI = (27.89 - 9.99) / 9.99
    ROI = 17.9 / 9.99
    ROI = 1.79
    ROI = 179%

    To change the answer from a number to a percent, just multiply your final answer by 100. And remember that you must figure out your profit first before doing anything else.

    Example B

    Say that you bought a set on sale for $125.38 USD. You wait four years before selling it. You sell it for $479.67 USD.

    ROI = (479.67 - 125.38) / 125.38
    ROI = 354.29 / 125.38
    ROI = 2.83
    ROI = 283%

    While the retail for the set is $129.99 USD. You sell it for $479.67 USD after waiting four years.

    ROI = (479.67 - 129.99) / 129.99
    ROI = 349.68 / 129.99
    ROI = 2.69
    ROI = 269%

    The ROI of an investment can change depending on the purchase price. As you can see above, the ROI was greater when the set was purchase on sale. Although it was a mere $5 USD difference, the ROI difference was 14%. A higher ROI is always better.

    The ROI is a very useful tool that helps determining how well your investment was. Now, go check all your investments and see how you did!

    Thanks for reading!
     

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    To calculate ROI I use:

     

    Sold or current price / purchase price - 1

     

    That cuts out any need for brackets and using a subtraction step to calculate the profit.

     

    One thing I'd disagree with is "I always say that the CAGR formula is used before investing."  In fact CAGR is a better metric of investment performance at the end of your investment (or to measure you performance to date using current market prices) than ROI is.  CAGR takes into account the time period of the investment whereas ROI does not.  e.g. 400% ROI sounds impressive but there is a big difference between 400% over 2 years or over 10 years.  CAGR levels out the time factor.

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