How investors can use ROI
ROI is essential for comparing different investments and deciding where to allocate resources. It helps investors see which options are performing better relative to their costs, allowing for more strategic financial planning. By evaluating ROI regularly, investors and companies can identify the most profitable investments and adjust their strategies to maximize returns.
Let's say that the investor not only invests his money in real estate but also flips Pokémon cards and buys various forms of cryptocurrency. They might have different ROIs over a five-year period for different asset classes. Say, the investor can make 89% on his property and 113% and 189% on cryptocurrency and Pokémon cards, respectively. In this case, depending on their investor profile, they might opt to invest in one of the latter or diversity across the whole three, allocating capital based on other metrics, such as risk.