Return on investment gives the investor the opportunity to evaluate the performance of an investment. An investor can compare ROI to others investments in his or her portfolio and see which one was the most profitable.
ROI in its most basic level is pretty straight forward. How much did you buy an asset for, how much did you sell it for, find the difference divided over the original and you get your ROI. This might sound very basic, but there are a lot of considerations, such as: Transaction cost, taxes, time, inflation. Another very important aspect is the opportunity cost. What would you have done with that money had you not made this investment?
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