Understanding Return on Investment

ROI measures the profitability of an investment. The formula is: ROI = (Gain - Cost) / Cost x 100. A 50% ROI means you earned 50 cents for every dollar invested.

Simple vs. Annualized ROI

Simple ROI doesn't account for time. A 50% return in 1 year is much better than 50% over 10 years. Annualized ROI adjusts for this: the same 50% over 10 years is only about 4.1% per year — closer to a savings account than a stock market return.

What's a Good ROI?

It depends on the investment type. Stock market average: 7-10% annualized. Real estate: 8-12% including appreciation. Business investments vary widely but should exceed the risk-free rate (Treasury bonds, ~4-5%) to justify the risk.

Frequently Asked Questions

How do I calculate ROI?

(Amount Returned - Amount Invested) / Amount Invested x 100. Example: Invested $10K, returned $15K. ROI = ($15K-$10K)/$10K x 100 = 50%.

What is annualized ROI?

It's the equivalent annual return rate. Formula: (Final/Initial)^(1/years) - 1. This lets you compare investments held for different time periods on an equal basis.

Does ROI include fees and taxes?

This calculator uses gross numbers. For true ROI, subtract all fees, commissions, and taxes from your "amount returned" before calculating.

Can ROI be negative?

Yes. If you invested $10K and got back $8K, your ROI is -20%. Negative ROI means you lost money on the investment.