How to calculate ROI
Example: investing $1,000 and getting back $1,500 is a 50% ROI. If that took 3 years, the annualized return is (1.5)^(1/3) − 1 = 14.47% a year, not 16.67%, because each year's gain builds on the last.
Why annualized return matters
A plain ROI ignores time. A 50% return in 2 years (22.47% a year) is much better than 50% in 10 years (4.14% a year). Annualizing, also called the compound annual growth rate or CAGR, puts investments held for different lengths of time on the same footing.
Include every cost in "amount invested", such as fees, commissions and money spent improving the asset, and every payout in "amount returned", such as dividends or rent, for a fair result. ROI also ignores risk and inflation.
Next steps
To see how a regular deposit grows over time, use the compound interest calculator.
Frequently asked questions
What is a good ROI?
It depends on risk and time. The U.S. stock market has historically averaged roughly 10% a year before inflation, so many investors compare against that, but a safe return can be worth accepting at a lower rate.
How do I calculate annualized ROI?
Divide the final amount by the starting amount, raise it to the power of 1 divided by the number of years, and subtract 1. Doubling money in 5 years is 2^(1/5) − 1 = 14.87% a year.
Can ROI be negative?
Yes. Getting back less than you put in is a negative ROI. Getting back $800 on $1,000 is −20%.
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