Price Returns vs Rate of Return
It is one of the more confusing concepts when it comes to investments – The difference between Price Returns and Rate of Return.
Let’s do a test. Imagine you are a cash rich investor evaluating which investment option to take. Which of the following investments appear most attractive to you?
a. A property that tripled in value from $100,000 to $300,000.
b. Shares from company ABC which doubled from $1 to $2.
c. A unit trust that grew by 50% net of charges.
d. An account which pays a guaranteed fixed interest of 4%.
Have you decided?
What if I tell you that the property took 30 years to triple in value, the shares took 20 years to double in value and the unit trust took 15 years to grow 50%?
Which investment will you be choosing now?
Let’s take a step further. Consider the following:
a. A property whose value grew at 3.72%
b. Shares from company ABC whose value grew at 3.52%
c. A Unit Trust which grew at 2.74%
d. A savings account which gives a guaranteed fixed interest rate of 4%
It’s much easier to choose now, isn’t it?