How the ROI calculator works
Return on investment (ROI) tells you how much an investment earned compared with what it cost. It works for anything you put money into and later get money back from: shares, a fund, a rental property, a piece of equipment, a marketing campaign or a small business.
The calculator gives you three numbers:
- ROI: the total gain as a percentage of what you put in.
- Gain: the money you made (or lost).
- Annualized ROI: the steady yearly return that would produce the same result. This is also called the compound annual growth rate (CAGR).
Annualized ROI = (amount returned ÷ amount invested)^(1 ÷ years) − 1
Enter the length in years (decimals are fine: 1.5 means 18 months), or switch to From dates to use exact start and end dates. With dates, the calculator counts the days and divides by 365.25, the average year length including leap years.
Worked example 1: a simple investment
You buy shares for $10,000 (including fees) and sell them 3 years later for $15,000.
- Gain: $15,000 − $10,000 = $5,000
- ROI: $5,000 ÷ $10,000 = 50%
- Annualized ROI: 1.5^(1/3) − 1 = 14.47% a year
- Money multiple: 1.5× (you got back $1.50 for every $1)
Using the exact dates 1 January 2023 to 1 January 2026 gives 1,096 days, or 3.0007 years. The annualized ROI is then 14.468%, almost the same.
Worked example 2: why annualized ROI matters
Click Compare another investment to add up to three. The default comparison shows why total ROI alone can mislead:
| Investment | Invested | Returned | ROI | Held | Annualized ROI |
|---|---|---|---|---|---|
| A | $10,000 | $15,000 | 50% | 3 years | 14.47% |
| B | $5,000 | $7,500 | 50% | 5 years | 8.45% |
| C | $8,000 | $9,200 | 15% | 1 year | 15.00% |
A and B both returned 50%, but A did it two years faster, so its yearly return is far higher. C had the smallest total ROI, yet its yearly pace was the best of the three. When you compare investments held for different lengths of time, rank them by annualized ROI.
Worked example 3: a house
You bought a home for $250,000 and sell it 8 years later for $400,000.
- ROI: $150,000 ÷ $250,000 = 60%
- Annualized ROI: 1.6^(1/8) − 1 = 6.05% a year
That looks good, but it leaves out a lot. To get a true ROI, add buying and selling costs, repairs and improvements to the amount invested. If the property earned rent, add the net rent to the amount returned. With a mortgage, the return on your own cash is different again, because borrowed money magnifies both gains and losses.
Same ROI, different speed
The table shows the yearly return behind a total gain of 50% and of 100% (doubling your money) over different holding periods.
| Years held | Annualized ROI for a 50% gain | Annualized ROI for a 100% gain |
|---|---|---|
| 1 | 50.00% | 100.00% |
| 2 | 22.47% | 41.42% |
| 3 | 14.47% | 25.99% |
| 5 | 8.45% | 14.87% |
| 10 | 4.14% | 7.18% |
| 20 | 2.05% | 3.53% |
Doubling your money sounds great, but over 20 years it is only 3.53% a year. That may not even keep up with inflation and safe savings rates.
Short holding periods
Annualizing a short period can give a wild number. A 30% gain in 6 months becomes an annualized ROI of 69%, because it assumes you could repeat that pace for a whole year. The calculator warns you when the holding period is under a year. For short trades, the plain ROI is often the more honest figure.
Getting the inputs right
- Amount invested should include everything you paid: the price, commissions, fees, taxes on purchase and other costs. The SEC’s Investor.gov shows how even small yearly fees reduce returns over time.
- Amount returned is what you got back when you sold, or what the investment is worth today, plus any income you received along the way, such as dividends, interest or rent.
- Losses work too. If you invest $1,000 and get back $800, the ROI is −20%. If you lose everything, the ROI is −100%.
Limits of ROI
- It ignores cash flows in the middle. If you added money every month, or took some out, simple ROI can be badly off. A money-weighted return such as the internal rate of return (IRR) handles that.
- It ignores risk. A 10% return from a savings account and 10% from a single small company are not the same. Compare returns with options that carry similar risk.
- It ignores taxes and inflation unless you build them into the amounts. Subtract tax from the amount returned for an after-tax ROI, and compare the annualized ROI with inflation over the same years for a real return.
- Past results do not predict future ones. A high ROI on one investment says little about what it will do next.
Tips
- Use annualized ROI to compare, and total ROI to describe a single result.
- Write down every cost when you invest, so your ROI is honest later.
- Benchmark it. Compare your annualized ROI with a low-cost index fund or a CD over the same period.
Related calculators
To project future growth from regular contributions, use the investment calculator. To see how a steady rate compounds, use the compound interest calculator. For marketing campaigns, the ROAS calculator measures revenue per dollar of ad spend, and the break-even calculator shows how many sales you need to cover your costs.
This calculator is for education. It is not investment or tax advice.