Well, when you invest a dollar…you hope or even expect to get more than a dollar back. At some point. And let’s say you invested that dollar in Terminator's Closet, a leading dealer in cybernetic body enhancements. And let's say it went from $1 a share to a dollar ten…6 months later.
Nice return. You made 10 percent in just 6 months. But in most investing discussions, investment returns are discussed in the form of annual returns...not monthly or daily or bi-annual numbers.
So you need to convert your 6-month return into an annualized one. You can do the process here of imputing those numbers: that is, if you made 10 percent in SIX months…then in a year, presumably, you could notion that you’d have made 20 percent. It’s not that you are guaranteed to make 20 percent...it's just the math saying that IF YOU HAD COMPOUNDED AT THAT RATE, then you’d have made 20 percent.So what if you made 10 percent in a month? The stock went from a buck a share Jan. 1 to a buck 10 a share by Feb. 1? Using the same math, that month's gain of 10 percent would carry a compound rate of 120 percent on an annualized basis, meaning that at that rate you are more than doubling your money on an annualized return basis.
And that's more than enough dough to keep Terminator's Closet popping out those Wi-Fi-enabled contact lenses faster than people can wear 'em.Related or Semi-related Video
Finance: What Is a Real Return?67 Views
finance- a la shmoop. what is a real return? like is there a fake return? you
know like the news? well kinda .real return refers to an [man frowns talking to camera]
investment return mapped against inflation. so let's say you invest in a
bond that pays five percent a year for ten years and then pays you back your
principal .boring but nice- you know like a good doctor visit. your nominal return
over that period was 5% but since inflation was 3% a year during that
period on average your real return was only 2% a year- meaning that the
performance of your investment only eked out a 2% net gain against the price of [equation]
milk gas and you know knocked off iPhones. so don't be a chump who thinks
that they're making more money than they really are, and you know keep on keeping
it real. [man sitting in chair, talks to camera]
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