Return On Investment
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An investment return is the percentage change in value of the investment over a given period of time.
The Gain Percentage is calculated:
This is basically the amount the asset has increased divided by beginning value plus anything new added to the investment. The fraction is then converted to a percentage by multiplying by 100.
Return on investment does not take into account when the additions took place. A very large addition at the end of the measuring period has exactly the same effect as a large addition at the beginning of the measuring period.
"While ROI adjusts for fund contributions and withdrawals, it does not adjust for the timing of these cash flows. Because of the assumption that contributions were available for the whole period, ROI will give the same return no matter when in the period the flows occur. Another drawback of the ROI as a measure of investment performance is that it does not adjust for the length of the holding period. The ROI calculation gives the same result whether the gain was earned over a day, a year, or 10 years."
Source: Feibel, Bruce J. (2003) Investment Performance Measurement. (p. 26). Hoboken, NJ: John Wiley & Sons, Inc.
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