investing � Glowleaf

Nov 01

ROI for dummies

Doodling, Mind over Pixels, Moniez, Noobs, WebWriMo challenge No Comments �

ROI is another simple concept, and one very important as well. In order to calculate the cashflow in your investments, you need to understand ROI perfectly as well.

So, how do we calculate ROI? Lets give an example. ROI means Return On Investment, and means how much of our initial money that we invested does the asset give back, every year. Yes, the default timeframe for ROI is a year, so we have to separate “monthly ROI” from “yearly ROI”.

Investments in general have a small ROI, something like 10-20%. They also have a big capital investment.

For example, you need to pay 400.000$ for a house, and you rent it out for 1000$ a month. 12 x 1000 = 12.000

12.000 / 400.000 = 0.03 or 3%

ROI = 3%, which means that every year, we get back 3% of our initial capital that we invested. Yes, it sucks.

Thankfully, the internet gives us opportunities for mind boggling ROI figures. Those doing PPC for example are hitting 200-400% daily ROI. Domainers sometimes get even 1000% ROI. Of course, the cash invested are much less than real estate, but if you can scale it, you can make it a business.

On the Cashflow post, I wrote as an example buying a website for 500$ that makes you 80$ per month. That is 16% monthly ROI, and it means that in 7 months, you will have earned your initial capital back, and the rest is pure profit from that point on.

Calculating the monthly ROI of your small investments, will allow you to write down a timeline of when they pay off themselves completely. When an investment pays itself off, then it is time to buy a new asset. Try to limit the number of unpaid off investments to 2 or 3 maximum, simply because, shit happens. Don’t be afraid to “float” though, its part of taking the risk. And business means risk.

Another rule of thumb is to focus on investments in a niche, so you can leverage one over the other, and also work with the same marketplaces. Also, people will start to know you, and if you are a good trader, you will make your life easier by enjoying smooth transactions and referrals. In addition, becoming an expert in a niche makes your mind recognize the pitfalls and opportunities instantly. The biggest advantage in any conflict is fighting on familiar territory…

Domains can also give juicy ROI. A 30-50% monthly ROI is quite possible for an undervalued domain sale, if you look hard enough. Having an eye on the marketplace for opportunities is essential, especially at your asset building phase.

If you train yourself to calculate everything according to ROI, you will be able to whip up numbers and opportunities instantly. You can separate your finances, reduce the liabilities, turn them into assets or if that is impossible, simply cut the slack.

ROI can also be negative as well. Try to figure out your car’s ROI, do that now.

Yes, it is a big negative number. Exactly. Of course, no one said to sell your car, or that it is not essential, but at least you understand that it is a liability, and not an asset, like many stupid sheep believe. Recognizing it as a liability, allows you to find assets to pay off the monthly cost of you car.

And that is the big deal actually. If you can build an asset, to pay off each and every one of your liabilities, you are rich. Think about it.

Of course it is not that easy. But its a start. Have that as your goal, and if you get even to 50%, you are making half your paycheck through your assets.

Stay tuned, next post is on investing online.