Investors, as a rule, want to know which are the most profitable financial investments. After all, in any decision in the financial market there is the so-called opportunity cost, that is, what is given up in exchange for a given choice.

If the individual leaves the money saved in the savings account, for example, and finds that there are more advantageous investments than the savings account, that cost was precisely that gain that the investor could have received.

In order not to miss considerable return chances, it is essential that you know how to calculate the return on investments and thus you can choose the most advantageous ones. Check out these tips and make good choices in the financial market.

## What is the profitability of financial investments?

Simply put, profitability is the money earned on a capital “X” after a certain time. For example, if you start your own business for a certain amount, you expect to receive the company’s profits later, don’t you?

In the financial market, there is a situation that is somewhat similar to the previous one. The difference is that instead of setting up an establishment for some amount, the individual uses that value to place it in a financial application.

Still, just like the entrepreneur, the investor wants to get a positive financial return after a certain period. Despite this desire, in both cases there may be positive or negative profitability.

It is quite true that in the financial market, one can find ways to mitigate risks and make regular gains, after all, there is the so-called “fixed income”.

It is worth remembering that, in general, the return on an investment is given as a percentage, although it can also be heard that an application yielded real “Y”.

As you will notice, when you start investing, a number of factors interfere when choosing the most profitable financial investments, such as the available investment capital, the time the money will be allocated, taxation, liquidity, the risks involved etc. .

Beforehand, be aware that in the universe of investments, profitability and risk are virtually on the same track. Thus, the higher the chances of loss, the greater the potential for gain and, on the other hand, the lower the risks, the lower the return.

Since “profitability potential” involves a considerable degree of uncertainty, often “it’s better to have one bird in your hand than two flying,” isn’t it? Still, don’t be discouraged, because in the fixed-income investment class itself you can find more profitable financial investments compared to others that are also secure but offer low returns.

## How to calculate the return on investments?

To make your understanding easier, let’s start with a basic example. If one person lends $ 1000 to another, at a rate of 10% per annum, it will ultimately have a positive return of $ 100 on starting capital or an exact 10% return.

So far everything would be perfect if there was no risk that the borrower would default, would you agree? Another hurdle would be to have plenty of money and not find someone to transfer the resource in exchange for a gain.

To solve these problems arises precisely the financial market, in which people can put the leftovers of money, with the promise of receiving them corrected for an interest rate, after a combined period.

If you notice well, fixed-income investments work as if they were loans, the difference between them is who will be the “borrower”, which can be a bank, the government or even a company. Whatever the investment, several factors influence the final return of the borrower.

Let’s illustrate how to calculate profitability through a Bank Certificate of Deposit (CBD) application, which is widely traded in the financial market.

Rather, it is worth remembering that the interest rate of this investment can be fixed (known at the time of contracting), fixed (based on the performance of a benchmark) or mixed (by combining the first two types).

In the case of floating rate CDBs, the most common benchmark is the Interbank Deposit Certificate (CDI), which has a rate very similar to the Selic rate, which represents the basic interest rates of the economy. Thus, it is often heard that a particular CBD yields so many percent of the CDI.

Let us now make an example of profitability calculation with the following scenario: investment of R $ 1,000 in CDB for two years, yielding 110% of CDI. Suppose in this case that the CDI (rate used on loans between banks) is at 6.90% per annum. In this case, it should be remembered that the investor would pay the lowest withholding income tax rate, which is 15% on the gain, after 720 days of application.

Thus, we would have the following gross profit calculation:

$ 1000 x (1.1 x 0.069) x 2 = $ 151.80.

Note that in this example, instead of percentages, we use the decimal form of numbers, after all, 110% is the same as 110 divided by 100, whose result is 1.1. The same reasoning goes for 6.90%.

The formula could be described as:

Capital applied x Interest rate x time = gross return.

Remember that the interest rate and time must have the same unit, such as month or year.

Now, from gross profit of $ 151.80, we need to take the 15% of income tax. Thus, we multiply the R $ 151.80 by 0.15, to arrive at a deduction of R $ 22.77 for this tax. Finally, when we take the IR from gross return, we reach a net gain of R $ 129.03.

Therefore, upon redemption, the investor would have received R $ 1,129.03. Finally, to find the net return, just divide this amount by the initial capital (R $ 1000), then multiply by 100 and then take 100. In this case, the return would be 12.90% in the two years. investment, which would average 6.45% each year.

## How to choose the most profitable financial applications?

Now that you know how to calculate profitability, you need to simulate the conditions of each investment to find the most profitable financial applications.

You should keep in mind that in certain situations it is possible to increase the net return on an investment. For example, by leaving money allocated longer, the interest rate tends to be higher while taxation tends to be lower.

Moreover, when comparing applications, it is necessary to choose those that offer a gain higher than inflation. In the case of the previous example, by discounting inflation from net profitability, we will arrive at real profitability.

Also note that the return on each investment must be analyzed according to the risk involved. Thus, it is fair to compare the savings account with the CBD, but not with corporate stocks, since they are part of very different realities, one fixed income and one variable income.