# A Must Know: Computing Your ROI

One of the many essentials when investing is determining whether it’s all worth it by asking yourself the greatest question, “How much money did I make?” There are investors that do not do this basic stuff, maybe because they simply do not know how to or they do not know its importance.

In this article you both can uncover the importance knowing the basics of ROI as well as being able to compute it.

## What is Return on investment?

This is a known metric or performance measure to gauge a certain investment’s profitability. ROI can help you sort out investments that are profitable and make a comparison with your other investments, too. It is just easy to compute and interpret, thus, you can apply it to a wide array of personal investments. It can aid you in making wiser decisions and moves.

## Why knowing ROI is important?

ROI is important in knowing the efficiency on your investments. It aims to measure the amount of return in comparison with the investment’s cost. An investor cannot really assess his investments (i.e. stock, bond, rental property, collectible, option, etc.) without calculating for this one. It can give a concrete signal to any investor about the viability or practicality of a specific investment.

## How to compute ROI?

When calculating for the Return on Investment, the return of a particular investment is divided by the cost of the investment. The formula goes like this:

ROI = [(Gain from investment – Cost of investment)  / Cost of investment] x 100

Where, the gain of investment represents the proceeds acquired from the sale of the investment.

Or

ROI = (Net profit / Cost of investment) * 100

The results can either give you a plus or a minus. A plus (a.k.a. positive result) means profit while a minus (a.k.a. negative result) indicates a loss.

## What affects ROI?

With the given formula, there is one factor that does not appear in the calculation that can greatly affect ROI. Truly, it is a performance measure that has a simple calculation. Investors should know that TIME is one major factor that must be considered. An investment might indicate a 1,000% returns and another one reflects a 50% returns. By merely looking at the figures, the investment with a 1,000% returns is alluring; however, one must be able to consider the influence of time. What if the first investment takes 25 years to flourish whereas the second one just needs a month to pay off? Hence, time periods must be strongly considered, too.

## Conclusion

Return on Investment is a powerful and useful tool to assess your investments. It does not mean that an ROI gives you a positive result and you can stay complacent. It can still falter in the future. Expected ROI are not useful since there is no data to back it up.

Inflation is indeed an extremely debated topic in economics. There are different points of view stating that it is just a phenomenon that drags the economy down – making everything harder and riskier.

Inflation is usually described as the sustained rise in prices of goods and services in a certain country. Its triggering point is – the value of money falls. If the prices of things keep on increasing and is making everything more difficult, then, is it something to be really dreaded about?

Or does it bring its own benefits, too?

## Inflation is actually good for the economy

In cases that the economy is not running fully due to deflation (i.e. rise in unemployment and unused resources), inflation can help turn the tables. When the economy has been stuck in a period of recession, a higher rate of inflation can help it recover, thus, boosting its economic growth.

Moreover, when the prices of goods and services are falling (deflation), people are becoming unwilling to spend their money since they are thinking that prices can get cheaper sooner or later, hence, it leads them to delay purchases. If this happens, it can have an adverse domino effect to demand, then affecting production, distressing employment rate which may further lead to layoffs, and worst, a weakening and failing economy.

On the other hand, inflation boosts consumption. If you know that items are more likely to rise by 2-3% in a year, then you can be urged to purchase it now since buying it after some time can most likely increase its price.

Looking for a great investment strategy? Try Growth Investing.

## essentially increases wages

If the price of goods and services continue to increase in the market, employers find it easier to adjust and increase wages. In turn, employee productivity increases since there is an increase in the workers’ morale. Rise in wages can be attributed to inflation.

## aids debtors

Inflation is a great help to people with current debts and are repaying their loans. With inflation peaking, wages of people can increase fast as well. To put it simply, loan payments become less valuable since it is taking a smaller portion of a person’s income. Quite the reverse of deflation or falling of prices – it actually intensifies the value of loans.

A good example is the United States, which is known as the leading debtor in the world, inflation helps reduce the impact of its massive debt.

## favorable if it is 2-3% a year

Economists argue that a little does of inflation is vital to promote economic growth and to stabilize the economy. The considered healthy rate is 2-3% per year. As examined in this article, it can still be considered positive since it can result to wage growth. It can also lead to profitability of businesses due to a continued flow in their capital.

Inflation is a constructive phenomenon as long as the factors being considered such as employment, business growth, and wage concerns are moving up altogether in unison.

Read also about the events you need to anticipate in the economic calendar.

# Investing Dictionary #4: Federal Funds

The Federal Funds or just Fed Funds in some cases are the excess reserves that the commercial banks and other financial institutions deposit at regional Federal Reserve Banks. According to Investopedia, these funds can be lent, then, to other market participants with insufficient cash on hand to meet their lending and reserve needs. The loans are unsecured and are made at a relatively low-interest rate, called the federal fund’s rate or overnight rate, as that is the period for which most such loans are made.

Federal Reserve Building, Washington DC, USA

## All You Need To Know About Federal Funds

More from the Federal Funds, these fed funds are present to guide the country’s commercial banks to meet their daily reserve requirements which are equaled to the money banks are required to maintain at their regional Federal Reserve.

Among the regional banks, the Fed is the one that sets a set target rate or range for the fund’s rate; this means that the target set for each region can vary. One more thing about the set rate or target is, it is adjusted periodically based on economic and monetary conditions.

## Federal Funds and Interest Rates

Interest rates are the means the Federal Reserve uses in the open market operations to manage the supply of money in the economy. The Fed funds and the Interest Rates are highly related, they have a lot much in common when it comes to the broader market. The Federal Reserve task is to announce the effective fund’s rate at the end of each trading, which in return set the weight of the average rate for all transactions in the market day.

# Investing Dictionary #3: Expense Ratio

Expense Ratio is a rare word to stumble upon, it is a word prevalent in-between companies and it varies on more private talks the market community has seen. So going back to Expense Ratio, it is actually a measure of what it costs an investment company to operate a mutual fund.

You may ask how expense ratio is determined; well according to the Investopedia: An expense ratio is determined through an annual calculation, where a fund’s operating expenses are divided by the average dollar value of its assets under management (AUM). Operating expenses are taken out of a fund’s assets and lower the return to a fund’s investors. It is also known as the management expense ratio (MER).

## All You Need To Know About Expense Ratio

Expense ratio varies very differently on each type of fund, operating expenses vary widely. One of the biggest parts or the crucial component of operating expenses lies on the fee paid to a fund’s investment manager or advisor.

Further costs include record keeping, custodial services, taxes, legal expenses, and accounting and auditing fees. Investopedia makes a clear distinction between funds, “expenses that are charged by the fund as reflected in the fund’s daily net asset value (NAV) and do not appear as a distinct charge to shareholders.”

## Funds to Keep In Mind

There are two different expense ratio fund; Index Funds and Actively Managed Funds are both type of funds to keep a list on. Index Funds usually carry very low expense ratios; the managers who oversee these funds are plainly repeating a given index, so the need to have a full management team on staff is deliberately discarded.

Actively managed funds, on the other hand, employs teams of research analysts examining companies as potential investments. By coming up with a team, creating and managing this team adds more costs that are then get passed on to shareholders in the form of higher and bigger expense ratios.

# Investing Dictionary #2: Interest Rate Risk

For today’s word of the day, it’ll be Interest Rate Risk. IRR according to Investopedia is the risk that an investment’s value will change due to a change in the absolute level of interest rates, in the spread between two rates, in the shape of the yield curve, or in any other interest rate relationship. Such changes usually affect securities inversely and can be reduced by diversifying (investing in fixed-income securities with different durations) or hedging (such as through an interest rate swap).

## More On Interest Rate Risk

The values of IRR heavily affect the value of bonds better than stocks, the way IRR affects bond is rather much more direct. When Interest Rates rise, bond prices receives a decent decrease and vice versa. The logic and rationale on that are interest rates increase, the opportunity cost of holding a bond marginally decreases. This is because investors are able to comprehend a better yield by switching to other investments that have the higher interest rate.

Read also: What is bond yields?

A definite example is; a 10% bond is worth far more if interest rate decreases, the bondholder then receives a fixed rate of return relative to the market, which offers a low rate of return as the receiving end of the decrease in rates.

## Market Interest Hikes

Like bonds, market interest rate increases when prices on previously issued-income securities as traded in the market decline since potential investors are now more inclined to buy new securities that offer higher rates.

It is only by having lower selling prices that it can pass securities with lower rates become competitive with securities issued after market interest rates have turned higher.

# Investing Dictionary #1: Debt Ceiling

The term “debt ceiling” is constructed under the Second Liberty Bond Act of 1971, this means ceiling a number of bonds the United States can issue. The Liberty Bond is a kind of bond that is issued solely by the U.S. government during the World War 1. These Liberty Bonds were introduced as a means of financing the war effort in Europe.

## Debt Ceiling and Why It Matters?

As of 2011, the debt ceiling was set at \$14.3 trillion. Debt Ceiling is also known as the debt limit or statuary debt limit. The President then, before the debt ceiling was created, has the free reign of the country’s finances! The debt ceiling mainly was used to make the President fiscally responsible for everything that was happening financially by that time, over time the ceiling was set higher and higher by year it almost reached its limits.

When in an instance that the limit is reached, the United States would be in default; they would be lowering their credit rating and increasing the cost of its debt. Some worst showdowns that reached the limit have led the government to shutdowns. The conflict that is normal existence between the White House and the Congress; they argue whether or not the debt ceiling is to be used as a leverage to push budgetary agendas.

## 1995 Conundrum

Looking back to 1995, the debt ceiling was used as a negotiating tool to increase the spending cuts. This was all devised by then-House Speaker Newt Gingrich, a part of the republican congress. Some instance like, President Clinton refused to increase the maximum cap of the debt ceiling, which the lead to a total shutdown of the government. The White House together with the Congress, after a very long discussion, had made the appeal on a balanced budget with modest spending cuts and tax increases.

President Barack Obama delivers his State of the Union address in the House Chamber at the U.S. Capitol in Washington, D.C., Jan. 25, 2011. (Official White House Photo by Pete Souza)
This official White House photograph is being made available only for publication by news organizations and/or for personal use printing by the subject(s) of the photograph. The photograph may not be manipulated in any way and may not be used in commercial or political materials, advertisements, emails, products, promotions that in any way suggests approval or endorsement of the President, the First Family, or the White House.

## Obama Faces Same Dilemma Last ‘11

The most recent president Barack Obama has faced the same issue last 2011, the Republicans that are part of the Congress argued for deficit reductions in order to approve an increase in debt ceiling. It was that time that the U.S. Treasury debt was stripped of its triple-A rating.

The most recent government shutdown was around 2013, it was down for a good 16 days after conservative republicans attempted to defund the Affordable Care Act by leveraging the debt ceiling. It was eventually led to the suspension of the debt limit when the Treasury estimated to run out of money!

Read also: What is bond yields?

# Forex Smartphone Apps Crash Course

The past years has proven that anything can innovate, smartphones were smarter, electric cars and everything from your speakers down to your appliances is voice recognized and controllable. It has been a whirlwind of experiment and innovation, everything has been accessible with your phone and with it, you are also connected to the world! One thing that sparked a bigger sensation in the community is the presence of Forex smartphone application.

## Smartphone and Forex!

Smartphone applications are really a treat; they are ever present and available in your local store! Apple store if you are using any iOS powered devices or the Play Store for any android powered devices. These applications or tools helps traders to have the most pleasant experience when it comes to trading, they also provide traders with real-time data of stocks available in the market, the applications also analyze currencies and place trades anytime and anywhere. These apps are either free or paid, some are pretty accessible and some may need to be upgraded to pro to utilize its full potential.

The most fundamental requirement to access these applications is an internet. You can’t use them without one; you won’t be able to update their statistics and data. You must be connected to a Wi-Fi or you are using your mobile data!

There are a lot of variety you can choose from when looking for the right trading up for you! Don’t worry if this one doesn’t fit your preferences or it may seem lackluster. You will always find a better one in the swimming pool of trading application. There are also similar apps from the app engineers that also eases the trading process for everyone, several suggestions within your app store are provided so don’t forget to keep a closer look!

Always remember that a lot of the popular apps may not fit your taste, but always remember that always having one and mastering it can significantly boost your trading! To sum it up, the best feature Forex and trading applications give is their availability; you can trade on the fly and anywhere, provided that you have access to the internet!

# All About Cryptocurrencies: What is Bitcoin?

Bitcoin had been available than what you think of. It has been present ever since 2009 and it sprung from the idea of the mysterious Satoshi Nakamoto’s white paper. What Bitcoin really is that a cheaper alternative from the traditional online payments and transactions and is closely governed by decentralized authority.

If you’re wondering, there are no physical Bitcoins available for purchase; they only exist in balances associated with public and private keys. These are then kept in a public ledger, along with all Bitcoins transactions that were verified by a massive amount of computing powers.

The terms used for recording Bitcoins are “keys”. These “keys” are number and letter that are linked through a mathematical encryption algorithm. Public Keys are the locations used for Bitcoin sending, while Private Keys are meant to safeguard your account and are just used to authorize Bitcoins Transmissions. You can say that the Public Keys are the bank account number, while Private Keys are similar to ATM pin numbers.

## What is Bitcoin Mining?

Bitcoin Mining is the act where new cryptocurrencies are released. The process of Bitcoin mining involves collating previous transactions into blocks and trying to solve a computationally difficult puzzle. The catch is you have to be the first one to solve the puzzle gets to place the next block on the block chain and claim the rewards; the mining also gives the miner Bitcoin accompanied with the newly released cryptocurrency.

Bitcoin Mining is decentralized, anyone in the world with the proper tools and internet can mine. Bitcoin’s security is solely dependent on this decentralization, every move and decisions made are based on a consensus.

## But how hard it is to mine Bitcoins?

It actually depends on how much effort you put in if you choose to follow the software innate protocol, the Bitcoin network mining comes for two weeks or so, but the network constantly and automatically updates the difficulty of mining. It keeps the difficulty on a rate that can stabilize the discovery of a new block.

One reason why the mining’s difficulty is always updated is because; the harder the level is the less profitable mining is for miners, and the more people mining, the less profitable mining is because of the distribution to each miner. The payout is always dependent on a number of transaction fees, the block reward, and of the price of Bitcoin; the more people mining means more people will share and split of the profit.

Read also: Managing Risk in Cryptocurrencies

# What Events to Anticipate in the Economic Calendar?

The economic year is brimming with a basketful of events and what not’s to look forward to. This will be a rundown of some of the events that you need to mark on your economic calendar to start elevating your trading game. First and foremost, the Economic Calendar is the professional and comprehensive calendar economist, traders, and market analysts use in order to track eventful dates that can lead to market-moving events.

## Events to Remember

The number one thing to look forward to as a budding trader are the Gross Domestic Products or GDP reports; this is the time where you can adjust and gauge the state of the economy a country has before spending a lot of cash on it.

Trader Tip: Learn to revisit previous GDP reports from several countries you are willing to invest money on, sometimes, a pattern is seen or a trend can be followed with the increasing and decreasing of a country’s GDP, master the countries’ GDP reports and learn when to take a move.

The next one to look out to is the Purchasing Manager’s Index of PMI; what this is a report that can be used to determine a company’s economy through compounding several thousand of purchasing managers’ from the biggest companies make.

Trader Tip: Tracking the PMI is much easier and predictable as it is reported monthly, as a novice trader; this is one exercise you can practice on a monthly basis. Also, the PMI is a heavy influence that can sway a country’s GDP, so by tracking it regularly, you can come up with a forecast for a country’s future GDP giving you the edge you need in trading.

The last one would be the Consumer Price Index or CPI this is a kind of report where traders can take hold of consumer related data. Some of the useful data a trader can treasure are those of; incomes, financial situations, and consumption demand which are usually obtained by conducted surveys.

Trader Tip: the CPI is a very useful tool to determine a country’s current situation. Most of the time, if the results from the CPI reveals a better consumer spending, it means that the country’s economy is on the verge of rising. The CPI inflation rate means the CPI is below the goal of a monetary policy, which leads equities to rally, but seldom can be dependent on the communication coming from the country’s central bank.

## Remember the Economic Calendar

Use the economic calendar is a daily basis, as a trader, it is your solemn duty to rely on the events that mark a big significant in the market. The economic calendar is simply fair and easy to understand, always consult and look for it before negotiating any deals and future trades to minimize any margins of errors and loss.