We use cookies (including third-party cookies such as Google) to remember your site preferences and to help us understand how visitors use our sites so we can improve them. To learn more, please see our privacy policy and our cookie policy.

To agree to our use of cookies, click 'Accept' or choose 'Options' to set your preferences by cookie type.

Options Accept
BullionVault

CHARTS

  • English
  • Deutsch
  • Español
  • Français
  • Italiano
  • Polski
  • 日本語
  • 简体中文
  • 繁體中文
  • Daily audit
  • Help
  • Contact
  • Deposit
  • Login
  • Open account
  • ABOUT US
    • About BullionVault
    • In the press
    • Reviews
    BUY/SELL BULLION
    • Vaulted gold & silver
    • -Live order board
    • -Daily Price
    • Coins for delivery (UK)
    INVESTMENT GUIDE
    • Guide to gold
    • -How to buy gold
    • -Gold investment
    • -Gold investment plan
    • -Investment insurance
    • -Compare asset performance
    • Guide to silver
    • -How to buy silver
    • Guide to platinum
    • -How to buy platinum
    GOLD NEWS
    • Gold news front page
    • -Gold price news
    • -Opinion & analysis
    • -Market fundamentals
    • -Gold/Silver Investor Index
    • -Infographics
    CHARTS
    • Gold price
    • Silver price
    • Platinum price
    • Price alerts
  • Login
  • Open account
  • BUY/SELL BULLION
  • Vaulted gold & silver
    • ⤷
    • Live order board
    • Daily Price
  • Coins for delivery (UK)
  • INVESTMENT GUIDE
  • Guide to gold
    • ⤷
    • How to buy gold
    • Gold investment
    • Gold investment plan
    • Investment insurance
    • Compare asset performance
  • Guide to silver
    • ⤷
    • How to buy silver
  • Guide to platinum
    • ⤷
    • How to buy platinum
  • GOLD NEWS
  • Gold news front page
    • ⤷
    • Gold price news
    • Opinion & analysis
    • Market fundamentals
    • Gold/Silver Investor Index
    • Infographics
  • CHARTS
  • Gold price
  • Silver price
  • Platinum price
  • Price alerts
  • ABOUT US
  • About BullionVault
  • In the press
  • Reviews
  • Help
  • Contact
  • Daily audit
    • English
    • Deutsch
    • Español
    • Français
    • Italiano
    • Polski
    • 日本語
    • 简体中文
    • 繁體中文

Gold News

Live support

NEED HELP? ASK US NOW

Search form

Gold News front page

Gold Price News

SLV Silver ETF Expands Fastest in 18 Months as Biden Moves into White House

More...

Gold Investing In Depth

Learn about gold bullion bars

Learn about gold bullion coins (and costs)

Gold investment: Why & how?

Gold Investment Analysis

  • Latest Gold Investor Index
  • Diversification: Gold as investment insurance
  • 40-year Asset Performance Comparison Table

Gold Articles

Opinion & Analysis

Gold Price News

Investment News

Gold in History

Gold Books

Gold Investor Index

Gold Infographics

Archive

  • January 2021 (14)
  • December 2020 (24)
  • November 2020 (23)
  • October 2020 (25)
  • September 2020 (25)
More...

List of authors

Imagine! An ROI on CDs

Wednesday, 11/14/2018 09:01

Smarter investments mean higher ROI...

BACK in 1979 and 1980, I remember my poor dad talking about the rate of return he was getting on his bank's certificates of deposit, writes Robert Kiyosaki, author and editor of Rich Dad Poor Dad, in Addison Wiggin's Daily Reckoning.

It seemed normal at the time, but their rate was 18%. Who wouldn't like an 18% return on a CD today?

What I found really interesting though was when the savings-and-loan crisis hit in the 1980s: the bank retracted the 18% interest rate and basically cancelled the outstanding CDs.

Today, if you invested $10,000 in a five-year CD at the national average rate of 1.15%, you would have earned $592 in interest at the end of the five years.

I have always found it amusing that people think saving money is smart. This strategy is not smart if your goal is real wealth.

I often write about investing for cash flow. But the reality is that when it comes to investing, cash flow isn't the only thing I pay attention to.

In my investments, I have two key focuses: cash flow and return on investment (ROI), which goes hand-in-hand with cash flow.

Your return on investment is exactly that: the amount of cash the money you invested is paying or returning to you. In other words, how hard is the money you invest working for you?

Most stockbrokers or real estate agents talk about a 10% return as a good return. But in most cases, that is a 10% return in capital gains, not cash flow. It's not real money until you sell the entity. Again, that is the problem with getting your financial education in the S quadrant. (In most cases, S can stand for sales.)

As an investor, I must know what kind of ROI the salesperson is talking about. Is it 10% in cash flow or capital gains, and what are the tax consequences? Am I punished with taxes, or given tax breaks?

More importantly, how do I achieve an infinite return (aka "money for nothing" in which I see returns without putting my own money into the deal)?

There are several ways to calculate return on investment depending on what you're measuring. Some are more complicated than others.

Some formulas take depreciation into account when calculating ROI. Another formula assumes that the cash flow you are receiving is being re-invested immediately and takes that into account. Each formula is accurate, depending on what you want to measure.

Personally, unless it's absolutely necessary, I like to follow the K.I.S.S. principle and keep my calculations super simple. So, when I refer to ROI, I typically mean what is called cash-on-cash return on an investment. After all, I'm only interested in one thing: how much cash is flowing into my pocket. It's all about the cash flow.

Figuring out your cash-on-cash return is easy. The equation is:

The annual cash flow / Amount of cash invested = Cash-on-cash return on investment

For example, let's assume you're buying a rental property that costs $100,000 using a 20% down payment of $20,000. Each month your property cash flows $200. That's an annual cash flow of $2,400.

To calculate your cash-on-cash return would look like this:

$2,400 / $20,000 = 12% cash-on-cash ROI

Not a bad return, but not stellar either.

Let's take a look at another example. Say you purchase $2,500 in stock that pays an annual dividend of $100.

$100 / $2,500 = 4%

Well, at least you're getting a return.

The point of showing the two examples, a rental property and a stock investment, is to illustrate that not all investments are created equal. Understanding how much cash flow you're making and what kind of ROI that cash flow represents helps you to know how hard your investments are working for you.

The whole reasoning to focus on cash flow is that you want your money working hard for you so that you don't have to work hard for your money. If you have an investment making 4% ROI for you, then it's not working very hard. If, you have one making you 50% ROI, well then you have a real team member.

The years between 2000 and 2010 have been called the "Lost Decade". For millions of amateur stock market investors, their ROI was less than two%, for some even zero% when you account for inflation.

In real estate, millions of people lost everything – in some cases, more than everything if they buried themselves in debt trying to save a home that they never really owned. Some professional investors also lost everything.

However, for a few professional investors in both stocks and real estate, the "Lost Decade" has been their "Best Decade".

One unfair advantage of a financial education is the possibility of a much higher ROI on your money, with much less risk, and (in many cases, with the help of a good accountant) zero taxes.

Today, when someone calls me pitching an investment, if the investment he or she is proposing does not guarantee a 28% return the first year, cash in my pocket, I turn the investment down. Why risk my money when I can get a government-guaranteed return?

The lowest return I will consider is 28%. On many of my investments, even a 100% or 250% return is not enough. I want an infinite return.

With little financial intelligence, you can typically expect a low return on your investments. Why? Because you won't know what to look for in investments that generate higher returns and will probably end up in investments or savings plans that offer low yields.

This is why financial planners recommend mutual funds, CDs, and savings to people with little financial intelligence. This is also why so many people get taken in when they are promised too-good-to-be-true returns on investments they know nothing about.

Obtaining and sustaining a high rate of return takes financial education and experience. There is no secret sauce, no magic pill. It takes putting in the time and effort to study, research, and taking action.

  • Reddit logo
  • Facebook logo
  • Twitter logo
  • Google logo
  • Yahoo logo
  • LinkedIn logo
  • Digg logo
  • StumbleUpon logo
  • Technorati logo

Publisher of Agora Financial, Addison Wiggin is also editorial director of The Daily Reckoning. He is the author, with Bill Bonner, of the international bestsellers Financial Reckoning Day and Empire of Debt, and best-selling author of The Demise of the Dollar.

Addison Wiggin articles

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

Follow Us

Facebook Youtube Twitter LinkedIn

 

Mobile apps

 - live trading 24/7

 - buy & sell instantly

 - up-to-the-second charts

 

 

 

Daily news email
Go to 'communications settings' 

Get the latest daily gold price news free by email

Latest gold news by email

 

 

 

Gold Investor Index
5 January 2020

Gold Investor Index

Gold investing +58% in NY21

 

 

 

LBMA webinar
21 January 2021

LBMA

London gold trading

 

 

 

International
Investment

16 December 2020

Gold 2021

Gold in 2021

 

 

 

LBMA Alchemist
1 December 2020

Newton

True Gold/Silver Ratio

 

 

 

  •  Email us

Market Fundamentals

  • 'Cut Bullion Duty to Cut Smuggling': India's Gold Industry
  • Platinum Price Hits 4-Year High Even as Electric Beats Diesel Cars in Europe
  • Record Investing Pushes 'Industrial' Silver and Platinum into Deep Deficits
More...
  • Cost calculator
  • Cookies
  • Terms & conditions

©BullionVault Ltd 2005-

  • Twitter
  • Facebook
  • LinkedIn
  • YouTube

Save your cookie preferences

We use cookies to remember your site preferences, record your referrer and improve the performance of our site. For more information, see our cookie policy.

Please select an option below and 'Save' your preferences.

Save

You can update your cookie preferences at any time from the 'Cookies' link in the footer.

Secure auto-logout warning

You have not been active for some time.

For your security you will be logged out in   minutes unless you take action.