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What is Rate of Return?

Amount of money you're making compared to how much an investment cost.

What is Rate of Return?

Rate of return is a term used to describe how much money you're making from an investment compared to how much it cost you. It's usually expressed as a percentage. So, for example, if you put $100 into savings, and a year later you have $105, your rate of return would be 5%. It's a way of measuring how well your investments are doing, or in other words, how fast your money is growing.

3 things to know about Rate of Return

1. The Higher, The Better: When it comes to the rate of return, generally the higher the percentage, the more money you're making on your investment. So, for example, a rate of return of 7% is better than a rate of return of 3%.

2. Rate of Return Can Be Negative: If you lose money on an investment, your rate of return can be negative. This means you get back less than you put in.

3. Rate of Return isn't Guaranteed: In investments, the rate of return isn't guaranteed and can change based on market conditions and performance of the investment. This is why it's considered a risk to invest, as the rate of return could be lower than expected or even negative. Always remember, the potential for higher returns usually also comes with higher risk.

Disclaimer: Yendo is not a provider of financial advice. The material presented on this page constitutes general consumer information and should not be regarded as legal, financial, or regulatory guidance. While this content may contain references to third-party resources or materials, Yendo does not guarantee the accuracy or endorse these external sources.