Gains or losses that come from an initial investment over a set period of time are known as the rate of return. Also known as ROR, it’s usually expressed as a percentage of your initial investment. A positive rate of return means an investment has increased in value, while a negative rate of return means the value has declined. The rate of return can be a helpful way to gauge how profitable an investment is over a chosen period of time. You may choose to compare a single investment’s performance over time or focus on comparing returns from different investments. Ways To Measure ROR There are multiple approaches to measuring rate of return. There are slight nuances between each approach and which type you use depends on your goals. Nominal rate of return: The amount of money an investment generates excluding inflation or taxes. As a result, the calculation has limitations Annual rate of return: How much an investment’s value has changed over the course of a year, expressed as a percentage Money weighted rate of return: Calculates your investment performance while including factors like