Enter the amount you invested and the total value returned to calculate your return on investment. Add the time period to see your annualized ROI for easy comparison across investments.
Understanding Return on Investment
Return on investment measures the profitability of an investment relative to its cost. A 50% ROI means you earned half of your original investment back as profit. It is the single most widely used metric for evaluating investment performance because it provides a clear, comparable percentage regardless of the dollar amounts involved.
ROI becomes even more useful when annualized. An investment that returns 50% over 5 years is far less impressive than one returning 50% in 6 months. Annualized ROI normalizes the time component so you can fairly compare a 3-year real estate deal against a 6-month stock trade.
The ROI Formulas
Total ROI = ((Amount Returned – Amount Invested) / Amount Invested) × 100
Annualized ROI = ((Amount Returned / Amount Invested)^(1/Years) – 1) × 100
The annualized formula uses the geometric mean, which accounts for the compounding effect and gives you the equivalent annual return rate.
How to Use This Calculator
Amount Invested – Your total cost basis including the purchase price, fees, commissions, and any other costs associated with the investment.
Amount Returned – The total value you received back. This includes the sale price plus any dividends, distributions, rental income, or other cash flows during the holding period.
Investment Period – The number of years you held the investment. Use decimals for partial years (e.g., 2.5 for two and a half years).
What Counts as a Good ROI?
Context determines whether an ROI is good or poor. The S&P 500 index has delivered approximately 10% annualized returns over the past century. Any investment consistently beating that benchmark while carrying similar risk is performing well.
Real estate investors typically target 8-12% annualized returns including rental income and appreciation. Venture capital funds aim for 20-30% but accept much higher failure rates. High-yield savings accounts currently offer 4-5% with essentially zero risk.
The key is comparing ROI against the opportunity cost. If a rental property returns 7% annually and a simple index fund would have returned 10%, the property underperformed despite generating positive returns.
Common ROI Mistakes to Avoid
Forgetting to include all costs is the most frequent error. When calculating stock ROI, include brokerage commissions, bid-ask spreads, and taxes. For real estate, account for closing costs, maintenance, property management fees, insurance, and property taxes.
Ignoring the time dimension leads to misleading comparisons. A 100% return sounds exceptional until you learn it took 15 years. The annualized ROI in that case is just 4.7%, underperforming a basic savings account.
Not adjusting for inflation overstates real returns. A nominal 8% annual return with 3% inflation delivers only about 5% in purchasing power growth.