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Factor in fees (most mutual funds or ETFs have an expense ratio fee), taxes (for interest earned or capital gains) and asset allocation, and even the 7% figure looks too optimistic to him.
The rate of return on a portfolio can be calculated indirectly as the weighted average rate of return on the various assets within the portfolio. [3] The weights are proportional to the value of the assets within the portfolio, to take into account what portion of the portfolio each individual return represents in calculating the contribution of that asset to the return on the portfolio.
Return on investment (ROI) or return on costs (ROC) is the ratio between net income (over a period) and investment (costs resulting from an investment of some resources at a point in time). A high ROI means the investment's gains compare favourably to its cost.
This means if reinvested, earning 1% return every month, the return over 12 months would compound to give a return of 12.7%. As another example, a two-year return of 10% converts to an annualized rate of return of 4.88% = ((1+0.1) (12/24) − 1), assuming reinvestment at the end of the first year. In other words, the geometric average return ...
An Overview of the Return on Assets Ratio Formula Return on assets is a measure of corporate efficiency. The more a company can earn relative to its total assets, the more productive it is.
The phrase return on average assets (ROAA) is also used, to emphasize that average assets are used in the above formula. [2] This number tells you what the company can do with what it has, i.e. how many dollars of earnings they derive from each dollar of assets they control. It's a useful number for comparing competing companies in the same ...
Profitability ratios measure the firm's use of its assets and control of its expenses to generate an acceptable rate of return. [ 2 ] Liquidity ratios measure the availability of cash to pay debt.
In a bond fund where the historical gross return might be 8%, a 1% expense ratio will consume approximately 12.5% of the investor's return. In a money market fund where the historical gross return might be 5%, a 1% expense ratio will consume approximately 20% of the investor's historical total return.
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