How Do I Get the Best Rate of Return?

Malcolm Tatum

The rate of return (ROR) has to do with the amount that is gained or lost with a particular investment during a specified period of time. Typically, this return is determined by comparing the current worth with the amount of the original investment, then expressing the difference as a percentage. In order to get the best rate of return from an investment, it is important to evaluate the potential of that stock, bond, or other asset before making the purchase, then monitor its progress as time goes on.

Businesswoman talking on a mobile phone
Businesswoman talking on a mobile phone

It is important to note that identifying a best rate of return is somewhat subjective, in that what one investor considers to be a very good ROR may be less than acceptable to another. For example, an investor who is somewhat conservative and likes to avoid risk whenever possible will usually focus attention on investments that are considered relatively safe. By contrast, more adventurous investors will take risks that may or may not lead to significantly higher returns. For this reason, evaluating what constitutes the best rate of return requires understanding the nature of the investment and the level of risk it carries, rather than simply comparing those returns to other investments that may carry a very different risk level.

For the investor, the best rate of return is usually the highest level of return projected before the asset is actually purchased. For example, if the investor chooses a stock issue based on his or her projection that the shares will double in value over the next 12 months, and the stock price does in fact double during that period, then the best rate of return was achieved. Should the shares increase in value above that amount, that is all the better. The key here is to always evaluate investments carefully, so there are reasonable expectations as to what is most likely to happen with the value within a given period of time. If the projected rate of return is not considered worthwhile, then looking into other investments would be a better approach.

The best rate of return in just about any situation will involve the investment performing at least at the highest level projected for a given period of time. Should the investment fail to reach that level of performance, then the returns would not be considered the best, but something less. At that point, the investor would want to revisit the potential of that asset and decide if it is worth holding on to for a little longer, or if selling the asset and purchasing something with greater potential would be a more strategic approach.

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