Please explain Return on Investment?

[Narcissus]

Hi,

Can anyone explain to me by way of example what ROI percentage actually means? It probably sounds silly but if i invest 10K and am promised a return on investment of 10% over 3 years, does that mean after year 1 i only get 1k back? Or does it mean i get my 10K plus 1K every year for 3 years? Please just for simplicity, can you base the answer around the same figures?

 

[contemporary]

1k after 3 years i would say

 

[Narcissus]

Can't believe anyone would bother for a return like that. Does anyone know for sure?

 

[Purple]

contemporary is correct. It's just a good way of saying that you are getting about 3% per anum.

 

[Bob the slob]

Well if you are rich and have all this disposable income lets say €1,000,000 and there is a guaranteed return of 3%, thats an easy €30K over the year. Thats just an example tho.

 

[demoivre]

Can't believe anyone would bother for a return like that. Does anyone know for sure?

Note also that the return of 1k above is a nominal return which doesn't allow for inflation over the period of the investment. Latest figures show inflation is running at around 5% annually which would obviously impact on the real return on your investment.

 

[Narcissus]

Hey Bob,

If i had a million to invest, i'm gonna give it to someone who is going to give me back 30K a year???? When do i get my million back if thats the case? Wow, i'd rather keep the mil' thanks

 

[demoivre]

Hey Bob,

If i had a million to invest, i'm gonna give it to someone who is going to give me back 30K a year???? When do i get my million back if thats the case? Wow, i'd rather keep the mil' thanks

 

[Narcissus]

I think i best ask the guys in Savings and Investments.

 

[extopia]

With all due respect, Narcissus, the question has been answered. A return of 10% over three years on 10k means basically that you end up with 11k after the three years (10k plus 1k interest).

It's not a good return, no, but I assume you are dealing with sample figures.

 

[efm]

I think i best ask the guys in Savings and Investments.

You do realise that it is the same people?

 

[Bronte]

OP, they don't take away the 10 K (or the 1 Million). If you save 10K with them for 3 years you will get about 3% each year and at the end of year three you would get back your 10K.

More simply you get about 300 in Year 1, 300 in Year 2, 300 in Year 3 plus your 10K back. They may also not give you the 300 each year but give it to you at the end of year 3 (300 + 300 + 300 = 1K circa) - read the small print.