Hi guys... How are we doing? hope we are doing great?
A few days ago, a friend of mine was talking to me concerning an investment opportunity and was so keen on pitching an investment plan to me. He claimed that the so-called investment opportunity had an ROI of twenty per cent monthly. Another day, I was talking to another friend of mine who said something which I don't totally agree with and he claims that no business can give 15% return on investment monthly and if there was, they wouldn't be looking for people to invest in them. In other words, he feels that most of those investments are Ponzi schemes and they disguise to be investment platforms.
This brings me to the topic of my post today. What return on investment is actually adequate if you are to invest in a trading platform?
I must say a lot of people would come with mouth-watering offers to you and trust me they are trained well for it so they can pitch it without making them sound desperate. I remember sometime last year my friend told me she invested some money and she was expecting 30% every month and I was really surprised. A few months later the investment platform or the so-called forex traders were nowhere to be found.
What is return on investment(ROI)?
According to Investopedia, Return on Investment (ROI) is a performance measure used to assess the efficacy or profitability of an investment or compare the efficiency of several different investments.
In simple words, it is a way of measuring how profitable an investment is when compared to the principal amount invested. It is usually expressed in percentage.
A lot of people come with ridiculous ROIs and try to deceive the masses and the sad thing is that the gullible ones fall for the trap. Anyone can come with ridiculous ROI based on the time he or she has traded and this brings me to the next question.
What duration should be used when calculating the return on investment?
if a trader has traded for one month and he has doubled his capital in that month, he can arguably tell you that his return on investment is 100% but does that mean he can consistently give you 100% for 3 months? based on statistics the answer is NO. Return on investment should be determined by a lot of factors.
In my own point of view, three to five years of consistency should be used to calculate rather than an acute(forgive my medical term) duration like a year or six months.
It should also be noted that the longer the duration for calculation of ROI, the more accurate it is.
So therefore what is a good return on investment?
This is a question that I get to answer a lot of times but I think it is a relative thing.
A good ROI depends on a lot of factors; the factors include the individual, the investment and the environment.
Individual factors include risk tolerance, psychology and a host of other things.
Investment factors include; the sector involved, how recent the investment is, the sustainability of the investment and finally the adoption of the investment. For example, last year shares like zoom, Netflix, and Amazon had a lot of gains last year. This was partly because of the situation of things. Meetings became virtual and people stayed at home seeing movies. Timing also plays a role.
Then the environment has a lot to do with return on investment. In Nigeria, if you see a return on investment of 20%, it is most likely a scam or a pyramid scheme. They mostly don't have anything to offer. Environmental factors really determine if you are getting your principal back if the investment fails.
in summary, when picking an investment the ROI should not be your focus, your main focus should be your capital and the longevity of the investment. You should also classify an investment as high risk or low risk before assigning your capital to it.
Finally, research never fails. Do thorough research before delving into an investment platform.
I think that will be all for today.
Thank you for reading.