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Investment | Wealth Management

Investment Calculator

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Whether you're considering getting started with investing or you're already a seasoned investor, an investment calculator can help you figure out how to meet your goals. It can show you how your initial investment, frequency of contributions and risk tolerance can all affect how your money grows. We'll walk you through the basics of investing, tell you about different risks and considerations and then turn you loose. Ready to put your money to work?

Investing lets you take money you're not spending and put it to work for you. Money you invest in stocks and bonds can help companies or governments grow, and in the meantime it will earn you compound interest. With time, compound interest takes modest savings and turns them into serious nest eggs - so long as you avoid some investing mistakes.

You don't necessarily have to research individual companies and buy and sell stocks on your own to become an investor. In fact, research shows this approach is unlikely to earn you consistent returns. The average investor who doesn't have a lot of time to devote to financial management can probably get away with a few low-fee index funds.

The closer you are to retirement, the more vulnerable you are to dips in your investment portfolio. So what's an in investor to do? Conventional wisdom says older investors who are getting closer to retirement should reduce their exposure to risk by shifting some of their investments from stocks to bonds.

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In investing, there's generally a trade-off between risk and return. The investments with higher potential for return also have higher potential for risk. The safe-and-sound investments sometimes barely beat inflation, if they do at all. Finding the asset allocation balance that's right for you will depend on your age and your risk tolerance.

Say you have some money you've already saved up, you just got a bonus from work or you received money as a gift or inheritance. That sum could become your investing principal. Your principal, or starting balance, is your jumping-off point for the purposes of investing. Most brokerage firms that offer mutual funds and index funds require a starting balance of $1,000. You can buy individual equities and bonds with less than that, though.

Once you've invested that initial sum, you'll likely want to keep adding to it. Extreme savers may want to make drastic cutbacks in their budgets so they can contribute as much as possible. Casual savers may decide on a lower amount to contribute. The amount you regularly add to your investments is called your contribution.

You can also choose how frequently you want to contribute. This is where things get interesting. Some people have their investments automatically deducted from their income. Depending on your pay schedule, that could mean monthly or biweekly contributions (if you get paid every other week). A lot of us, though, only manage to contribute to our investments once a year.

When you've decided on your starting balance, contribution amount and contribution frequency, your putting your money in the hands of the market. So how do you know what rate of return you'll earn? Well, the SmartAsset investment calculator default is 4%. This may seem low to you if you've read that the stock market averages much higher returns over the course of decades.

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Let us explain. When we figure rates of return for our calculators, we're assuming you'll have an asset allocation that includes some stocks, some bonds and some cash. Those investments have varying rates of return, and experience ups and downs over time. It's always better to use a conservative estimated rate of return so you don't under-save.

Sure, you could count on a 10% rate of return if you want to feel great about your future financial security, but you likely won't be getting an accurate picture of your investing potential. That, my friend, would lead to undersaving. Undersaving often leads to a future that's financially insecure.

The last factor to consider is your investment time frame. Consider the number of years you expect will elapse before you tap into your investments. The longer you have to invest, the more time you have to take advantage of the power of compound interest. That's why it's so important to start investing at the beginning of your career, rather than waiting until you're older. You may think of investing as something only old, rich people do, but it's not. Remember that most mutual funds have a minimum initial investment of just $1,000?

Its a good idea not to wait to start putting your money to work for you. And remember that your investment performance will be better when you choose low-fee investments. You don't want to be giving up an unreasonable chunk of money to fund managers when that money could be growing for you. Sure, investing has risks, but not investing is riskier for anyone who wants to accrue retirement savings and beat inflation.

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Investment Calculator | SmartAsset.com

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Investing - Ultimate Guide to Retirement - Money Magazine ...

Of all the precious metals, gold is the most popular as an investment.[1] Investors generally buy gold as a way of diversifying risk, especially through the use of futures contracts and derivatives. The gold market is subject to speculation and volatility as are other markets. Compared to other precious metals used for investment, gold has the most effective safe haven and hedging properties across a number of countries.[2]

Gold has been used throughout history as money and has been a relative standard for currency equivalents specific to economic regions or countries, until recent times. Many European countries implemented gold standards in the latter part of the 19th century until these were temporarily suspended in the financial crises involving World War I.[3] After World War II, the Bretton Woods system pegged the United States dollar to gold at a rate of US$35 per troy ounce. The system existed until the 1971 Nixon Shock, when the US unilaterally suspended the direct convertibility of the United States dollar to gold and made the transition to a fiat currency system. The last currency to be divorced from gold was the Swiss Franc in 2000.[citation needed].

Since 1919 the most common benchmark for the price of gold has been the London gold fixing, a twice-daily telephone meeting of representatives from five bullion-trading firms of the London bullion market. Furthermore, gold is traded continuously throughout the world based on the intra-day spot price, derived from over-the-counter gold-trading markets around the world (code "XAU"). The following table sets out the gold price versus various assets and key statistics at five-year intervals.[4]

Like most commodities, the price of gold is driven by supply and demand, including speculative demand. However, unlike most other commodities, saving and disposal play larger roles in affecting its price than its consumption. Most of the gold ever mined still exists in accessible form, such as bullion and mass-produced jewelry, with little value over its fine weight so it is nearly as liquid as bullion, and can come back onto the gold market.[11][12] At the end of 2006, it was estimated that all the gold ever mined totalled 158,000 tonnes (156,000 long tons; 174,000 short tons).[13] The investor Warren Buffett has said that the total amount of gold in the world that is above ground could fit into a cube with sides of just 20 metres (66ft)[14] (which is roughly consistent with 158,000 tonnes based on a specific gravity of 19.3). However, estimates for the amount of gold that exists today vary significantly and some have suggested the cube could be a lot smaller or larger.[by whom?]

Given the huge quantity of gold stored above ground compared to the annual production, the price of gold is mainly affected by changes in sentiment, which affects market supply and demand equally, rather than on changes in annual production.[15] According to the World Gold Council, annual mine production of gold over the last few years has been close to 2,500 tonnes.[16] About 2,000 tonnes goes into jewelry or industrial/dental production, and around 500 tonnes goes to retail investors and exchange-traded gold funds.[16]

Central banks and the International Monetary Fund play an important role in the gold price. At the end of 2004, central banks and official organizations held 19% of all above-ground gold as official gold reserves.[17] The ten-year Washington Agreement on Gold (WAG), which dates from September 1999, limited gold sales by its members (Europe, United States, Japan, Australia, the Bank for International Settlements and the International Monetary Fund) to less than 500 tonnes a year.[18] In 2009, this agreement was extended for a further five years, but with a smaller annual sales limit of 400 tonnes.[19] European central banks, such as the Bank of England and the Swiss National Bank, have been key sellers of gold over this period.[20]

Although central banks do not generally announce gold purchases in advance, some, such as Russia, have expressed interest in growing their gold reserves again as of late 2005.[21] In early 2006, China, which only holds 1.3% of its reserves in gold,[22] announced that it was looking for ways to improve the returns on its official reserves. Some bulls hope that this signals that China might reposition more of its holdings into gold, in line with other central banks. Chinese investors began pursuing investment in gold as an alternative to investment in the Euro after the beginning of the Eurozone crisis in 2011. China has since become the worlds top gold consumer as of 2013.[23]

It is generally accepted that the price of gold is closely related to interest rates. As interest rates rise, the general tendency is for the gold price, which earns no interest, to fall, and vice versa. As a result, the gold price can be closely correlated to central banks[clarification needed] via their monetary policy decisions on interest rates. For example, if market signals indicate the possibility of prolonged inflation, central banks may decide to raise interest rates, which could reduce the price of gold. But this does not always happen: after the European Central Bank raised its interest rate slightly on April 7, 2011, for the first time since 2008,[24] the price of gold drove higher, and hit a new high one day later.[25] Similarly, in August 2011 when interest rates in India were at their highest in two years, the gold prices peaked as well.[26]

The price of gold can be influenced by a number of macroeconomic variables.[27] Such variables include the price of oil, the use of quantitative easing, currency exchange rate movements and returns on equity markets.[27]

Gold, like all precious metals, may be used as a hedge against inflation, deflation or currency devaluation. As Joe Foster, portfolio manager of the New York-based Van Eck International Gold Fund, explained in September 2010:

The currencies of all the major countries are under severe pressure because of massive government deficits. The more money that is pumped into these economies the printing of money basically then the less valuable the currencies become.[30]

Deutsche Bank's view of the point at which gold prices can be considered close to fair value (on 10 October 2014)[31]

Jewelry consistently accounts for over two-thirds of annual gold demand. India is the largest consumer in volume terms, accounting for 27% of demand in 2009, followed by China and the USA.[32]

Industrial, dental and medical uses account for around 12% of gold demand. Gold has high thermal and electrical conductivity properties, along with a high resistance to corrosion and bacterial colonization. Jewelry and industrial demand have fluctuated over the past few years due to the steady expansion in emerging markets of middle classes aspiring to Western lifestyles, offset by the financial crisis of 20072010.[33]

In recent years the recycling of second-hand jewelry has become a multibillion-dollar industry. The term "Cash for Gold" refers to offers of cash for selling old, broken, or mismatched gold jewelry to local and online gold buyers. There are many websites that offer these services.

However, there are many companies that have been caught taking advantage of their customers, paying a fraction of what the gold or silver is really worth, leading to distrust in many companies.[34]

When dollars were fully convertible into gold via the gold standard, both were regarded as money. However, most people preferred to carry around paper banknotes rather than the somewhat heavier and less divisible gold coins. If people feared their bank would fail, a bank run might result. This happened in the USA during the Great Depression of the 1930s, leading President Roosevelt to impose a national emergency and issue Executive Order 6102 outlawing the "hoarding" of gold by US citizens. There was only one prosecution under the order, and in that case the order was ruled invalid by federal judge John M. Woolsey, on the technical grounds that the order was signed by the President, not the Secretary of the Treasury as required.[35]

The most traditional way of investing in gold is by buying bullion gold bars. In some countries, like Canada, Austria, Liechtenstein and Switzerland, these can easily be bought or sold at the major banks. Alternatively, there are bullion dealers that provide the same service. Bars are available in various sizes. For example, in Europe, Good Delivery bars are approximately 400 troy ounces (12kg).[36] 1 kilogram (32ozt) are also popular, although many other weights exist, such as the 10oz, 1oz, 10g, 100g, 1kg, 1Tael, and 1Tola.

Bars generally carry lower price premiums than gold bullion coins. However larger bars carry an increased risk of forgery due to their less stringent parameters for appearance. While bullion coins can be easily weighed and measured against known values to confirm their veracity, most bars cannot, and gold buyers often have bars re-assayed. Larger bars also have a greater volume in which to create a partial forgery using a tungsten-filled cavity, which may not be revealed by an assay. Tungsten is ideal for this purpose because it is much less expensive than gold, but has the same density (19.3 g/cm).

Good delivery bars that are held within the London bullion market (LBMA) system each have a verifiable chain of custody, beginning with the refiner and assayer, and continuing through storage in LBMA recognized vaults. Bars within the LBMA system can be bought and sold easily. If a bar is removed from the vaults and stored outside of the chain of integrity, for example stored at home or in a private vault, it will have to be re-assayed before it can be returned to the LBMA chain. This process is described under the LBMA's "Good Delivery Rules".[37]

The LBMA "traceable chain of custody" includes refiners as well as vaults. Both have to meet their strict guidelines. Bullion products from these trusted refiners are traded at face value by LBMA members without assay testing. By buying bullion from an LBMA member dealer and storing it in an LBMA recognized vault, customers avoid the need of re-assaying or the inconvenience in time and expense it would cost.[38] However this is not 100% sure, for example, Venezuela moved its gold because of the political risk for them, and as the past shows, even in countries considered as democratic and stable, for example in the USA in the 1930s gold was seized by the government and legal moving was banned.[39]

Efforts to combat gold bar counterfeiting include kinebars which employ a unique holographic technology and are manufactured by the Argor-Heraeus refinery in Switzerland.

Gold coins are a common way of owning gold. Bullion coins are priced according to their fine weight, plus a small premium based on supply and demand (as opposed to numismatic gold coins, which are priced mainly by supply and demand based on rarity and condition).

The sizes of bullion coins range from one-tenth of an ounce to two ounces, with the one-ounce size being most popular and readily available.[40]

The Krugerrand is the most widely held gold bullion coin, with 46million troy ounces (1,400 tonnes) in circulation. Other common gold bullion coins include the Australian Gold Nugget (Kangaroo), Austrian Philharmoniker (Philharmonic), Austrian 100 Corona, Canadian Gold Maple Leaf, Chinese Gold Panda, Malaysian Kijang Emas, French Napoleon or Louis d'Or, Mexican Gold 50 Peso, British Sovereign, American Gold Eagle, and American Buffalo.

Coins may be purchased from a variety of dealers both large and small. Fake gold coins are common and are usually made of gold-plated lead.[citation needed]

Gold rounds look exactly like gold coins but they have no currency value.[41][42] They range in similar sizes as gold coins and come in 0.05 troy ounce all the way up to 1 troy ounce. Unlike gold coins, gold rounds have no additional metals added to them for durability purposes and do not have to be made by a government mint, which allows the gold rounds to have a lower overhead price as compared to gold coins. On the other hand, gold rounds are not as collectible as gold coins.

Gold exchange-traded products may include exchange-traded funds (ETFs), exchange-traded notes (ETNs), and closed-end funds (CEFs), which are traded like shares on the major stock exchanges. The first gold ETF, Gold Bullion Securities (ticker symbol "GOLD"), was launched in March 2003 on the Australian Stock Exchange, and originally represented exactly 0.1 troy ounces (3.1g) of gold. As of November 2010, SPDR Gold Shares is the second-largest exchange-traded fund in the world by market capitalization.[43]

Gold Exchange-traded products (ETPs) represent an easy way to gain exposure to the gold price, without the inconvenience of storing physical bars. However exchange-traded gold instruments, even those that hold physical gold for the benefit of the investor, carry risks beyond those inherent in the precious metal itself. For example, the most popular gold ETP (GLD) has been widely criticized, and even compared with mortgage-backed securities, due to features of its complex structure.[44][45][46][47][48]

Typically a small commission is charged for trading in gold ETPs and a small annual storage fee is charged. The annual expenses of the fund such as storage, insurance, and management fees are charged by selling a small amount of gold represented by each certificate, so the amount of gold in each certificate will gradually decline over time.

Exchange-traded funds, or ETFs, are investment companies that are legally classified as open-end companies or unit investment trusts (UITs), but that differ from traditional open-end companies and UITs.[49] The main differences are that ETFs do not sell directly to investors and they issue their shares in what are called "Creation Units" (large blocks such as blocks of 50,000 shares). Also, the Creation Units may not be purchased with cash but a basket of securities that mirrors the ETF's portfolio. Usually, the Creation Units are split up and re-sold on a secondary market.

ETF shares can be sold in basically two ways. The investors can sell the individual shares to other investors, or they can sell the Creation Units back to the ETF. In addition, ETFs generally redeem Creation Units by giving investors the securities that comprise the portfolio instead of cash. Because of the limited redeemability of ETF shares, ETFs are not considered to be and may not call themselves mutual funds.[49]

Gold certificates allow gold investors to avoid the risks and costs associated with the transfer and storage of physical bullion (such as theft, large bid-offer spread, and metallurgical assay costs) by taking on a different set of risks and costs associated with the certificate itself (such as commissions, storage fees, and various types of credit risk).

Banks may issue gold certificates for gold that is allocated (fully reserved) or unallocated (pooled). Unallocated gold certificates are a form of fractional reserve banking and do not guarantee an equal exchange for metal in the event of a run on the issuing bank's gold on deposit. Allocated gold certificates should be correlated with specific numbered bars, although it is difficult to determine whether a bank is improperly allocating a single bar to more than one party.[50]

The first paper bank notes were gold certificates. They were first issued in the 17th century when they were used by goldsmiths in England and the Netherlands for customers who kept deposits of gold bullion in their vault for safe-keeping. Two centuries later, the gold certificates began being issued in the United States when the US Treasury issued such certificates that could be exchanged for gold. The United States Government first authorized the use of the gold certificates in 1863. On April 5, 1933 the US Government restricted the private gold ownership in the United States and therefore, the gold certificates stopped circulating as money (this restriction was reversed on January 1, 1975). Nowadays, gold certificates are still issued by gold pool programs in Australia and the United States, as well as by banks in Germany, Switzerland and Vietnam.[51]

Many types of gold "accounts" are available. Different accounts impose varying types of intermediation between the client and their gold. One of the most important differences between accounts is whether the gold is held on an allocated (fully reserved) or unallocated (pooled) basis. Unallocated gold accounts are a form of fractional reserve banking and do not guarantee an equal exchange for metal in the event of a run on the issuer's gold on deposit. Another major difference is the strength of the account holder's claim on the gold, in the event that the account administrator faces gold-denominated liabilities (due to a short or naked short position in gold for example), asset forfeiture, or bankruptcy.

Many banks offer gold accounts where gold can be instantly bought or sold just like any foreign currency on a fractional reserve basis.[citation needed]Swiss banks offer similar service on a fully allocated basis. Pool accounts, such as those offered by some providers, facilitate highly liquid but unallocated claims on gold owned by the company. Digital gold currency systems operate like pool accounts and additionally allow the direct transfer of fungible gold between members of the service. Other operators, by contrast, allows clients to create a bailment on allocated (non-fungible) gold, which becomes the legal property of the buyer.

Other platforms provide a marketplace where physical gold is allocated to the buyer at the point of sale, and becomes their legal property.[citation needed] These providers are merely custodians of client bullion, which does not appear on their balance sheet.

Typically, bullion banks only deal in quantities of 1000 ounces or more in either allocated or unallocated accounts. For private investors, vaulted gold offers private individuals to obtain ownership in professionally vaulted gold starting from minimum investment requirements of several thousand U.S.-dollars or denominations as low as one gram.

Derivatives, such as gold forwards, futures and options, currently trade on various exchanges around the world and over-the-counter (OTC) directly in the private market. In the U.S., gold futures are primarily traded on the New York Commodities Exchange (COMEX) and Euronext.liffe. In India, gold futures are traded on the National Commodity and Derivatives Exchange (NCDEX) and Multi Commodity Exchange (MCX).[52]

As of 2009 holders of COMEX gold futures have experienced problems taking delivery of their metal. Along with chronic delivery delays, some investors have received delivery of bars not matching their contract in serial number and weight. The delays cannot be easily explained by slow warehouse movements, as the daily reports of these movements show little activity. Because of these problems, there are concerns that COMEX may not have the gold inventory to back its existing warehouse receipts.[53]

Outside the US, a number of firms provide trading on the price of gold via contract for differences (CFDs) or allow spread bets on the price of gold.

Instead of buying gold itself, investors can buy the companies that produce the gold as shares in gold mining companies. If the gold price rises, the profits of the gold mining company could be expected to rise and the worth of the company will rise and presumably the share price will also rise. However, there are many factors to take into account and it is not always the case that a share price will rise when the gold price increases. Mines are commercial enterprises and subject to problems such as flooding, subsidence and structural failure, as well as mismanagement, negative publicity, nationalization, theft and corruption. Such factors can lower the share prices of mining companies.

The price of gold bullion is volatile, but unhedged gold shares and funds are regarded as even higher risk and even more volatile. This additional volatility is due to the inherent leverage in the mining sector. For example, if one owns a share in a gold mine where the costs of production are $300 per ounce and the price of gold is $600, the mine's profit margin will be $300. A 10% increase in the gold price to $660 per ounce will push that margin up to $360, which represents a 20% increase in the mine's profitability, and possibly a 20% increase in the share price. Furthermore, at higher prices, more ounces of gold become economically viable to mine, enabling companies to add to their production. Conversely, share movements also amplify falls in the gold price. For example, a 10% fall in the gold price to $540 will decrease that margin to $240, which represents a 20% fall in the mine's profitability, and possibly a 20% decrease in the share price.

To reduce this volatility, some gold mining companies hedge the gold price up to 18 months in advance. This provides the mining company and investors with less exposure to short-term gold price fluctuations, but reduces returns when the gold price is rising.

Investors using fundamental analysis analyze the macroeconomic situation, which includes international economic indicators, such as GDP growth rates, inflation, interest rates, productivity and energy prices. They would also analyze the yearly global gold supply versus demand.

The performance of gold bullion is often compared to stocks as different investment vehicles. Gold is regarded by some as a store of value (without growth) whereas stocks are regarded as a return on value (i.e., growth from anticipated real price increase plus dividends). Stocks and bonds perform best in a stable political climate with strong property rights and little turmoil. The attached graph shows the value of Dow Jones Industrial Average divided by the price of an ounce of gold. Since 1800, stocks have consistently gained value in comparison to gold in part because of the stability of the American political system.[54] This appreciation has been cyclical with long periods of stock outperformance followed by long periods of gold outperformance. The Dow Industrials bottomed out a ratio of 1:1 with gold during 1980 (the end of the 1970s bear market) and proceeded to post gains throughout the 1980s and 1990s.[55] The gold price peak of 1980 also coincided with the Soviet Union's invasion of Afghanistan and the threat of the global expansion of communism. The ratio peaked on January 14, 2000 a value of 41.3 and has fallen sharply since.

One argument follows that in the long-term, gold's high volatility when compared to stocks and bonds, means that gold does not hold its value compared to stocks and bonds:[56]

Bullish investors may choose to leverage their position by borrowing money against their existing assets and then purchasing gold on account with the loaned funds. Leverage is also an integral part of buying gold derivatives and unhedged gold mining company shares (see gold mining companies). Leverage or derivatives may increase investment gains but also increases the corresponding risk of capital loss if/when the trend reverses.

Some of the economic mechanics of gold have been compared to those of cryptocurrencies. For example, they are both scarce, fungible and do not come attached to debt. Nick Szabo created a digital currency call "bit gold" that mimicked some features of gold.[57]

Some cryptocurrencies and services are backed by gold.[58]

Gold maintains a special position in the market with many tax regimes. For example, in the European Union the trading of recognised gold coins and bullion products are free of VAT. Silver and other precious metals or commodities do not have the same allowance. Other taxes such as capital gains tax may also apply for individuals depending on their tax residency. U.S. citizens may be taxed on their gold profits at 15, 23, 28 or 35 percent, depending on the investment vehicle used.[59]

Gold attracts a fair share of fraudulent activity. Some of the most common to be aware of are:

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Gold as an investment - Wikipedia

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Best Investment Opportunities For 2018 | Investment Ideas for ...

So what does an investment bank actually do?Several things, actually. Below we break down each of the major functions of the investment bank, and provide a brief review of the changes that have shaped the investment banking industry through the aftermath of the 2008 financial crisis. Click on each section to learn more.

Raising Capital & Security Underwriting.Banks are middlemen between a company that wants to issue new securities and the buying public.

Mergers & Acquisitions.Banks advise buyers and sellers on business valuation, negotiation, pricing and structuring of transactions, as well as procedure and implementation.

Sales & Trading and Equity Research.Banks match up buyers and sellers as well as buy and sell securities out of their own account to facilitate the trading of securities

Retail and Commercial Banking.After the repeal of Glass-Steagall in 1999, investment banks now offer traditionally off-limits services like commercial banking.

Front office vs back office.While the sexier functions like M&A advisory are front office, other functions like risk management, financial control, corporate treasury, corporate strategy, compliance, operations and technology are critical back office functions.

History of the industry.The industry has changed dramatically since John PierpontMorganhad to personally bail out the United States from the Panic of 1907. We survey the important evolution in this section.

After the 2008 financial crisis.The industry was shaken to the coreduring and after the financial crisis that gripped the world in 2008. How has the industry changed and where is it going?

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What is Investment Banking? How the Investment Banking ...

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What is an 'Investment'

An investment is an asset or item that is purchased with the hope that it will generate income or will appreciate in the future. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or will be sold at a higher price for a profit.

The term "investment" can be used to refer to any mechanism used for the purpose of generating future income. In the financial sense, this includes the purchase of bonds, stocks or real estate property. Additionally, the constructed building or other facility used to produce goods can be seen as an investment. The production of goods required to produce other goods may also be seen as investing.

Taking an action in the hopes of raising future revenue can also be an investment. Choosing to pursue additional education can be considered an investment, as the goal is to increase knowledge and improve skills in the hopes of producing more income.

Economic growth can be encouraged through the use of sound investments at the business level. When a company constructs or acquires a new piece of production equipment in order to raise the total output of goods within the facility, the increased production can cause the nations gross national product (GDP) to rise. This allows the economy to grow through increased production, based on the previous equipment investment.

An investment bank provides a variety of services designed to assist an individual or business in increasing associated wealth. This does not include traditional consumer banking. Instead, the institution focuses on investment vehicles such as trading and asset management. Financing options may also be provided for the purpose of assisting with the these services.

Speculation is a separate activity from making an investment. Investing involves the purchase of assets with the intent of holding them for the long-term, while speculation involves attempting to capitalize on market inefficiencies for short-term profit. Ownership is generally not a goal of speculators, while investors often look to build the number of assets in their portfolios over time.

Although speculators are often making informed decisions, speculation cannot usually be categorized as traditional investing. Speculation is generally considered higher risk than traditional investing, though this can vary depending on the type of investment involved.

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Investment

While the improved returns for do-nothing investors don't sound like much, over time they can significantly boost your nest egg. You could improve your performance by 1 percentage point by adopting a static, low-cost portfolio and putting your contributions on autopilot.

Let's say you started out with $50,000, were earning a 6 percent return and contributing $500 a month. Your nest egg would hit $1 million by 2050. What if you boosted your return to 7 percent? You'd hit seven figures three years sooner. Of course, you'd do even better if you lowered fund expenses and saved more.

There's a fly in the ointment, though: To reap the higher returns, you may have to short-circuit your own brain and stop trying to guess whether the market is too high or too low. You'll need to adopt a "dollar-cost averaging" strategy that invests equal amounts every month.

That way, you're buying at a broad range of market prices and getting lower prices (and more shares) when the market dips. You can do this with any stock, mutual fund or retirement account.

This may sound counterintuitive, but if you keep your long-term investing cheap and simple, you'll be a lot richer down the road. Less is more when it comes to achieving better returns.

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Here are 3 ways to close the investment timing gap - CNBC.com - CNBC

This article is about the term in investing. For articles on other subjects having the same abbreviation, see ROI.

Return on Investment (ROI) is the benefit to an investor resulting from an investment of some resource. A high ROI means the investment's gains compare favorably to its cost. As a performance measure, ROI is used to evaluate the efficiency of an investment or to compare the efficiencies of several different investments.[1] In purely economic terms, it is one way of relating profits to capital invested.

In business, the purpose of the return on investment (ROI) metric is to measure, per period, rates of return on money invested in an economic entity in order to decide whether or not to undertake an investment. It is also used as an indicator to compare different investments within a portfolio. The investment with the largest ROI is usually prioritized, even though the spread of ROI over the time-period of an investment should also be taken into account. Recently, the concept has also been applied to scientific funding agencies (e.g., National Science Foundation) investments in research of open source hardware and subsequent returns for direct digital replication.[2]

ROI and related metrics provide a snapshot of profitability, adjusted for the size of the investment assets tied up in the enterprise. ROI is often compared to expected (or required) rates of return on money invested. ROI is not net present value-adjusted and most school books describe it with a "Year 0" investment and two to three years income.

Marketing decisions have obvious potential connection to the numerator of ROI (profits), but these same decisions often influence assets usage and capital requirements (for example, receivables and inventories). Marketers should understand the position of their company and the returns expected.[3]

In a survey of nearly 200 senior marketing managers, 77 percent responded that they found the "return on investment" metric very useful.[3]

Return on investment may be calculated in terms other than financial gain. For example, social return on investment (SROI) is a principles-based method for measuring extra-financial value (i.e., environmental and social value not currently reflected in conventional financial accounts) relative to resources invested. It can be used by any entity to evaluate impact on stakeholders, identify ways to improve performance, and enhance the performance of investments.

As a decision tool it is simple to understand. The simplicity of the formula allows to freely choose variables, e.g., length of the calculation time, if overhead cost should be included, or details such as what variables are used to calculate income or cost components. To use ROI as an indicator for prioritizing investment projects is risky, since usually little is defined together with the ROI figure that explains what is making up the figure.[citation needed]

For long-term investments, the need for a Net Present Value adjustment is great. Similar to Discounted Cash Flow, a Discounted ROI should be used instead.

For a single-period review, divide the return (net profit) by the resources that were committed (investment):[3]

or

or

Complications in calculating ROI can arise when real property is refinanced, or a second mortgage is taken out. Interest on a second, or refinanced, loan may increase, and loan fees may be charged, both of which can reduce the ROI, when the new numbers are used in the ROI equation. There may also be an increase in maintenance costs and property taxes, and an increase in utility rates if the owner of a residential rental or commercial property pays these expenses.

Complex calculations may also be required for property bought with an adjustable rate mortgage (ARM) with a variable escalating rate charged annually through the duration of the loan.

Marketing not only influences net profits but also can affect investment levels too. New plants and equipment, inventories, and accounts receivable are three of the main categories of investments that can be affected by marketing decisions.[3]

RoA, RoNA, RoC, and RoIC, in particular, are similar measures with variations on how 'investment' is defined.[3]

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Return on investment - Wikipedia