A 5% return may end up being a better deal than a 20% return!!!!!

The time it takes to realise a gain, plays a huge part in determining our annual rate of return and the overall attractiveness of the investment.

If one is able to get a 5% return in a month, can we argue that it is a better investment than one that earns us a 20% return over a two-year period?

The Reasoning:
5% rate of return in a month
= yearly rate of return of 60% (0.05 x 12 months = 0.6).

20% return at the end of two years
= yearly rate of return of 10% (0.2 / 2 years = 0.1)

Premise:
The above argument is premised on being able to re-allocate the capital that you had out at 5% for a month, at attractive rates in the preceding months.

But in theory, if you could reallocate your capital five times over a two-year period and each time earn 5% a month, it would still produce better results than getting a 20% return at the end of a two-year period.

The year is the base time standard by which one compares different investment returns.

Rules to remember:
1. The time it takes to achieve the projected profit ultimately determines a great deal of the investment's attractiveness.
2. Always adjust the return to put it into a yearly perspective.