The most optimal investment is to invest in the asset providing the highest future value according to the size of the capital that an investor holds and the degree of risk that he or she can take. More simply, it is to invest in the asset that yields the highest return after a certain period when investing a certain amount. It also means to select the one providing the highest future value. Its method can be used regardless of the type of asset.

Figure 5. Optimal Selection 11

Figure 5 is a straightforward example showing which selection is better between two investment opportunities. Suppose Asset A returns $1,050 and Asset B $1,100 when investing $1,000 for a year. It is sure that you will invest in Asset B if both are safe. Asset A offers a profit of $50 with the investment principal one year later, but B offers $100, which is twice A’s profit. If the investment period is one year, the relationship between return on investment and future value is as follows.

 

Future Value = Investment Principal x (1 + Return on Investment)

 

By applying this formula, if you invest $1,000 in Asset B providing a return on investment of 10 percent, your expected future value is $1,100 after one year.

Figure 6. Optimal Selection 22

Now let’s look at the more complex case, to know what is the best choice. If we are considering investing $1,000, Asset A offers $1,100 after one year, B $2,000 after five years, and C $10,000 after ten years. What is the best choice among them, given that A, B, and C are all safe assets? Asset C, of course, is the best selection if the investor is not bound by time. When you calculate the one-year return on investment of three assets by using the simple interest method, Asset A gives 10% = $1,100/$1,000 – 1, B 20% = ($2,000/$1,000 – 1) / 5 years, C 90% = ($10,000/$ 1,000 – 1) / 10 years, where the return on investment of Asset C is highest. When the investment period is longer than one year, the relationship between return on investment and future value by using the simple interest method is as follows:

 

Future Value = Investment Principal x {1 + (Return on Investment x Investment Years)}

 

By applying this formula, when you invest $1,000 in asset C, which gives a 90 percent return on investment per year, its expected future value will be $10,000 in ten years. Then, you need to endure the desire to use $1,000 for ten years to gain the high return on investment expected from asset C and future value.

 

Figure 7. Future Value3

 

Figure 7 explains the relationship between investment resource and future value on the timetable. It shows compensation from the investment in the future when you invest your current resources in the assets, providing a certain return over a certain period. According to this formula, the wisest investment is to invest in the assets that are expected to provide the highest future value with your current investment resources.

 

“A wise investment is to invest in the asset that provides the highest future value.”

 

 

 

From “The Wise Investment of the Bible” 

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