The Secret of 3 R of Investment
The Secret of 3 R of Investment
3 R means Real Rate of Return of Investment.
3 R means Real Rate of Return of Investment.
3R = Rate of Return on investment – Rate of prevailing Inflation.
3R = Rate of Return on investment – Rate of prevailing Inflation.
If the final value is positive, it means you are creating wealth.
If the final value is positive, it means you are creating wealth.
If the final value is negative, it means you are eroding the wealth.
If the final value is negative, it means you are eroding the wealth.
Let’s understand this with an example.
Let’s understand this with an example.
Suppose you are earning a rate of return on one investment of 5% while 7% on the other and the rate of prevailing inflation is 6%.
Suppose you are earning a rate of return on one investment of 5% while 7% on the other and the rate of prevailing inflation is 6%.
In the first option the Real Rate of Return is -1% while in the other option +1%.
In the first option the Real Rate of Return is -1% while in the other option +1%.
In the first option you have eroded your capital by 1% while in the second option you have created wealth by 1%.
In the first option you have eroded your capital by 1% while in the second option you have created wealth by 1%.
If you would understand this small concept, you can change your wealth creation trajectory.
If you would understand this small concept, you can change your wealth creation trajectory.
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