In calculating Rate of Return, what is the dividend of the gain typically compared to?

The rate of return is a measure used to evaluate the efficiency of an investment by comparing the gain made in the investment to the amount of money that was initially invested. The calculation specifically takes the net gain (the profit from the investment) and divides it by the original investment amount. This comparison provides a clear percentage that reflects how well the investment has performed relative to what was initially put in.

Understanding the significance of comparing the gain to the initial investment helps investors gauge their financial performance and make informed decisions regarding future investments or adjustments to their current portfolio. This approach allows for a standardized assessment of returns across different investments, regardless of their nature or scale.