ROI Calculator
Calculate return on investment
Result
Total Return on Investment
Gain/Loss
$5,000.00
Annualized ROI
14.47%
Investment Period
3 years
How It Works
Overview
Return on Investment (ROI) is the most common way to measure whether an investment paid off. It expresses the gain (or loss) as a percentage of the original amount you put in, which makes it easy to compare wildly different investments — a stock, a piece of equipment, a marketing campaign, a side business — on the same scale.
Total ROI alone can mislead, though. A 50% return looks impressive until you find out it took 15 years to earn. That's why this calculator also shows annualized ROI, which expresses the same return as a smooth yearly rate. Annualized is the right number to compare investments held for different time periods.
The Formula
Total ROI is the simple percentage gain. Annualized ROI is the compound annual growth rate (CAGR) — the steady yearly return that, compounding, would turn the initial value into the final value over the same time period.
For investments with cash flows in or out during the holding period, neither ROI nor CAGR captures the full picture — internal rate of return (IRR) is the right tool there.
Worked Example
You put $10,000 into an index fund and after 3 years it's worth $15,000:
- Gain: $15,000 − $10,000 = $5,000
- Total ROI: 5,000 ÷ 10,000 × 100 = 50%
- Annualized ROI: (15,000 ÷ 10,000)^(1/3) − 1 = 14.5%
Compare with: $10,000 into a different fund that grows to $15,000 over 8 years. Same 50% total ROI, but only 5.2% annualized. Both produce the same dollar gain, but the first investment is roughly 3× as efficient over time.
When to Use This
- Comparing investments — stocks, mutual funds, real estate, businesses on a common percentage basis.
- Evaluating business decisions — equipment purchases, hiring, marketing campaigns.
- Real estate — including rental income and appreciation in the final value.
- Side projects — figuring out whether a business idea is worth the time invested.
- Performance reviews — measuring portfolio results year over year.
Common Mistakes to Avoid
- Comparing ROIs over different time periods. Always use annualized for cross-period comparisons.
- Forgetting fees. Subtract trading costs, advisory fees, and taxes to get net ROI — it can shave several points off.
- Ignoring time value. Money locked up for 10 years has an opportunity cost. A 30% ROI over a decade is below market average.
- Mixing nominal and real returns. Don't compare a nominal 8% bond return to a real 6% market return — adjust both for inflation first.
- Counting unrealized gains as ROI. Until you sell or rebalance, paper gains are not real returns. Taxes and market dips can erase them.
Frequently Asked Questions
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