# Explained quickly – with a formula to calculate

Return is the most important decision criterion for an investment. Because it shows you how much you can achieve with an investment. But how to calculate it? And what should I watch out for?

If you want to invest money, you inevitably come across the concept of return. This means that the yieldthat you get when you invest capital. Therefore, the return is next to this risk the most important decision criterion for a Investment.

But how is the risk related to the return? Isn’t the rate of return ultimately the rate of interest? And how can I calculate the return?

### What exactly is a return?

A return is the return on investment. Usually, it is expressed as a percentage and calculated on an annual basis. You will often find the indication “pa” for a possible return, which means “per year”.

Note: You can only calculate the return reliably in retrospect, that is, when you have invested money and made a possible profit (see below). So you only get one with an investment Return forecast indicated – but this should not apply. Because no one can make precise predictions about the development of an investment.

There are different types of returns: as with wages, a fundamental distinction is made here between gross and net returns. the Gross yield an investment is the return – without deducting taxes or other costs. the Net return however, is the return that remains after the charges have been deducted.

In addition, the return can be further differentiated on the basis of its origin, and the terminology sometimes overlaps. For example, there are the following types:

• Return on savings investment: Here, the return comes from the interest rate a bank gives you on an up-to-date or fixed account. Usually this is very low (see below).
• Stock return: The return on stocks, that is, the company’s stock, is largely made up of the price gains of a stock.
• Dividend yield: This is due to the amount of dividends to which an investor is entitled by holding a security. A Dividends are part of the company’s profits, which public limited companies distribute to their investors.
• Bond yield: A Borrowing is essentially a personal loan to a company or to the State. The business or government pays you interest on their loan. This and other factors such as the remaining term or the current price of a bond influence the yield.
• Real estate return: It is a question of renting or selling a Immovable, thus increasing the value together.
Related:   Oprah Winfrey buys 26 billboards to demand justice for Breonna Taylor

Fundamentally: All possible returns also depend on costs – which differ considerably from investment to investment.

### Does a return equal interest?

No – at least not necessarily. Interest income is always a return, but there are also some returns that are not due to interest, for example dividend returns (see above).

You will receive interest, for example, if you invest money using a daily or fixed-term deposit account – or if you lend money to the state or a business in the form of a self. – saying obligation (see above).

The return is then the amount you actually receive from an investment, i.e. ultimately the amount real interest of an investment. Because your return does not only depend on the interest rate, but also on other factors such as price movements (for bonds, stocks or funds) or costs.

### How can I calculate the return?

the Gross yield an investment (see above) is calculated from the money invested and the total amount of an investment.

The basic formula reads as follows:
[(Gesamtbetrag am Ende des Investments / eingesetztes Kapital) – 1] x 100 = gross yield in percentage.

A example for clarification:
You have invested 8,000 euros. After one year, you will have received 8,590 euros. So your raw return is [(8.590 Euro / 8.000 Euro) – 1] x 100 = 7.375 percent per year

There are different formulas for calculating the return on different forms of investment (see above). In order to calculate a return, it is therefore preferable to use a return calculator on the Internet.

the Net return is calculated in the same way as the gross yield, only that the costs have to be deducted here. The standard formula is therefore as follows:
[(Gesamtbetrag – Kosten / eingesetztes Kapital) – 1] x 100 = net yield in percentage

Related:   The third "Queen of the South" fell in Puebla

A example for clarification:
You have invested 8,000 euros. After one year, you will have received 8,390 euros; the assumed costs of 200 euros have already been deducted. So your net return is [(8.590 Euro – 200 Euro / 8.000 Euro) – 1] x 100 = 4.875 percent per year

Here too, the formulas may vary depending on the type of costs. You can also find yield calculators on various websites for this purpose.

### Are returns and security mutually exclusive?

Basically more than one possible Come back – or rather the forecast of return – the greater the risk of loss. You should always keep this in mind when investing – and weighing the risk and the return.

If you invest in individual stocks, you can also get a higher return than with an equity fund, which spreads the risk widely, but is usually quite expensive. However, individual stocks are much more likely to lose your money because your risk is not spread.

On the other hand, the savings account is considered a very low risk investment. But the return you can get right now is very low because of the low interest rates. By the so-called inflation, that is, the rate of inflation, your money loses value – a low rate of return can be completely consumed by inflation over the years.

Therefore, it may be worthwhile not only to save capital, but also to invest it. Investing offers the best combination of risk and return in ETFs, also called index funds. Here, a computer algorithm simulates an entire stock index such as the Dax. You benefit from the rising prices of many companies – and the costs are low.

Related:   Romain Bardet leaves AG2R for Sunweb, Greg Van Avermaet arrives at French

Disclaimer: Gitenberg brings its readers, one source of useful information for their next new vehicle purchase. We treat every model range independently and understand that not all cars are built for the racetrack and not all cars are built for the school run. Gitenberg applies an unbiased view when compiling reviews for its readers, providing key information and opinions to help make that next new car purchase a lot easier.

If you'd like to buy a car, visit here

Categories
Previous article

Next article