DEFINITION:
ROI is the percentage that indicates the profit or loss generated on an investment relative to its cost.
WHEN AND WHY IT’S USED:
ROI is used to measure the efficiency or profitability of an investment. Investors and advisors refer to ROI when comparing different investment options to see which ones yield the best return relative to the amount invested. It is a straightforward metric that simplifies the comparison of various opportunities, whether they are stocks, bonds, or other assets.
IMPORTANCE IN COMMUNICATION:
Clear communication about ROI with your advisor ensures that you understand how well your investments are performing. It helps you grasp the concept of profitability and efficiency, making it easier to compare the benefits of different investment options. By discussing ROI, you can better understand where your money is working best and why certain strategies are preferred.
This dialogue also facilitates transparency regarding performance metrics. When you know the ROI of different parts of your portfolio, you are better positioned to ask for adjustments or rebalancing if needed. Ultimately, understanding ROI is essential for aligning your investment choices with your financial goals and expectations.
EXAMPLES IN CONVERSATION:
“What is the ROI of my current investments?”
“Can you explain how we calculate ROI for the different assets in my portfolio?”