ROI formulas
ROI = (final value − invested) ÷ invested × 100
Annualized return = (final value ÷ invested)1 ÷ years − 1
Example
$10,000 that grows to $15,000 over 3 years is a 50% ROI. The annualized return is
1.51/3 − 1 ≈ 14.47% a year. Over 10 years, the same 50% total gain would be only
about 4.14% a year.
Using ROI well
- Compare investments by annualized return, not total ROI, when their time periods differ.
- Count every cost and every payout to get the real figure.
- Remember that ROI doesn't measure risk. A higher return often came with a bigger chance of loss.
Frequently asked questions
How do you calculate ROI?
ROI = (final value − amount invested) ÷ amount invested × 100. If you invest $10,000 and end up with $15,000, your ROI is (15,000 − 10,000) ÷ 10,000 = 50%.
What is annualized return (CAGR)?
ROI doesn't say how long the gain took. The annualized return, or compound annual growth rate (CAGR), is the steady yearly return that would turn the starting amount into the final amount over the same period, which makes investments of different lengths comparable.
Should I include costs and income?
Yes. Add fees, commissions and taxes to the amount invested, and add dividends, rent or interest you received to the final value. Otherwise the ROI will look better or worse than it really was.
What is a good ROI?
It depends on the risk and the time period. Broad stock indexes have historically returned roughly 7–10% a year before inflation over the long run. Compare the annualized return with what a low-risk option would have paid over the same time.
