Investment Income Ratio Formula

Investment Income Ratio

Investment Income Ratio Formula:

\[ IIR = \frac{\text{Investment Income}}{\text{Total Income}} \times 100\% \]

Investment Income Ratio (IIR):

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1. What is the Investment Income Ratio?

The Investment Income Ratio (IIR) measures the proportion of total income that comes from investment sources. It indicates how much of an individual's or company's income is generated from investments rather than active work or business operations.

2. How Does the Calculator Work?

The calculator uses the Investment Income Ratio formula:

\[ IIR = \frac{\text{Investment Income}}{\text{Total Income}} \times 100\% \]

Where:

\( Investment Income \) — Income from investments, dividends, interest, capital gains (USD)
\( Total Income \) — Sum of all income sources including salary, business income, and investment income (USD)
\( IIR \) — Investment Income Ratio expressed as a percentage (%)

Explanation: The ratio shows what percentage of total income is passive income from investments, helping assess financial independence and investment performance.

3. Importance of IIR Calculation

Details: A higher IIR indicates greater financial independence and reliance on passive income. It's crucial for retirement planning, investment strategy assessment, and financial health evaluation.

4. Using the Calculator

Tips: Enter investment income and total income in USD. Both values must be positive numbers, with total income greater than zero for accurate calculation.

5. Frequently Asked Questions (FAQ)

Q1: What is considered a good Investment Income Ratio?
A: Generally, an IIR above 20% is good, above 50% is excellent, and reaching 100% indicates complete financial independence through investments.

Q2: What types of income count as investment income?
A: Dividend income, interest from bonds/savings, rental income, capital gains from stock sales, and royalties from intellectual property.

Q3: How does IIR differ from return on investment (ROI)?
A: IIR measures income proportion relative to total income, while ROI measures investment performance relative to the amount invested.

Q4: Should IIR be calculated monthly or annually?
A: Annual calculation is more meaningful as it smooths out monthly fluctuations and provides a better long-term perspective.

Q5: Can IIR be negative?
A: No, IIR ranges from 0% to 100%. Negative investment income would result in a 0% ratio, indicating no positive investment returns.