Understanding Return on Investment
Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment. ROI measures the amount of return on an investment relative to the cost. It is calculated as: ROI = ((Final Value - Initial Investment) / Initial Investment) × 100%.
How to Use the ROI Calculator
Enter the amount you initially invested, the current or final value of your investment, and the time period in years. The calculator instantly shows your total ROI percentage and annualized return, making it easy to compare investments of different durations.
ROI Formula Explained
Simple ROI = ((Final Value - Initial Investment) / Initial Investment) × 100%. Annualized ROI = ((Final Value / Initial Investment) ^ (1 / Years) - 1) × 100%. The annualized version is essential for comparing investments held for different lengths of time. A 50% return over 5 years (8.4% annualized) is very different from 50% over 1 year.
Frequently Asked Questions
What is a good ROI?
It depends on the asset class. Historically, the S&P 500 has returned about 10% annually before inflation (7% after). Real estate averages 8-12% including appreciation and rental income. Anything consistently above the market average is considered strong performance.
Does ROI include fees and taxes?
This calculator computes gross ROI. For a more accurate picture, subtract management fees, transaction costs, and taxes from your final value before entering it. Net ROI is always lower than gross ROI and provides a more realistic view of your actual returns.