Quick answer: ROI is the gain divided by the amount invested: (final value − initial investment) ÷ initial investment. Turning $10,000 into $15,000 is a 50% return. Held for 5 years, that is a compound annual growth rate (CAGR) of 8.45% a year, and held for 10 years only 4.14% a year.
Return on investment (ROI) is the simplest way to answer “was that worth it?” It compares what you gained with what you put in, and it works for shares, property, a business, an ad campaign or a course.
ROI on its own ignores time. Making 50% in one year is very different from making 50% in ten. That is why the calculator also shows the compound annual growth rate (CAGR), which converts the total return into a steady yearly rate you can compare across investments.
The formulas
ROI = net gain ÷ amount invested × 100
CAGR = (final ÷ initial)1 ÷ years − 1
Include every cost in the amount invested, such as fees, commissions and taxes, and include any income received (like dividends or rent) in the final value. Otherwise the result will look better than it really was.
Past returns do not predict future ones. This is a way to measure what happened, not a forecast.
A worked example
Example. An investment of $10,000 that grows to $15,000 over 4 years has an ROI of 50%. The annualized return (CAGR) is 1.51/4 − 1 = 10.67% a year. Spread across the same 4 years, that steady rate would turn $10,000 into $15,000.
Why time matters
| Time held | Total return (ROI) | Annualized return (CAGR) |
|---|---|---|
| 3 years | 50% | 14.47% a year |
| 5 years | 50% | 8.45% a year |
| 10 years | 50% | 4.14% a year |
The same 50% gain on $10,000. CAGR = (final ÷ initial)^(1 ÷ years) − 1.
Common mistakes to avoid
- Comparing ROI figures over different time periods. 50% in three years is far better than 50% in ten, so compare the annual rate (CAGR).
- Leaving out costs. Fees, commissions, taxes and the cost of your time reduce the real return.
- Forgetting income. Dividends or rent received belong in the final value, otherwise the return looks worse than it was.
Frequently asked questions
What is a good ROI?
It depends on the risk and the time. A savings account might return a few percent a year, a broad stock index has historically returned more with big swings, and a small business may aim for much higher. Compare the annualized figure (CAGR) rather than the total.
What is the difference between ROI and CAGR?
ROI is the total return over the whole period. CAGR is the equivalent steady yearly rate. Use CAGR to compare investments held for different lengths of time.
Can ROI be negative?
Yes. If the final value is below what you invested, the ROI and net result are negative. The calculator shows that as a loss.
Does this include inflation or tax?
No. Figures are nominal. To see the real return, use values adjusted for inflation, and include any tax you paid.
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Sources and further reading
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