ROI Calculator

Frequently Asked Questions

What does ROI stand for?

ROI stands for Return on Investment. It's a performance measure that evaluates the efficiency and profitability of an investment by comparing the gain or loss relative to the initial cost.

How is ROI calculated?

ROI is calculated using the formula: ROI = ((Final Value - Initial Investment) / Initial Investment) × 100%. The result is expressed as a percentage, where positive values indicate profit and negative values indicate loss.

What is a good ROI percentage?

A good ROI depends on the investment type and duration. Stock market investments historically average 8-10% annually. Real estate often returns 10-15% including appreciation and rental income. Any positive ROI means profit, but compare against alternatives and inflation.

What's the difference between ROI and annualized ROI?

ROI shows total return over the entire investment period. Annualized ROI (or CAGR) shows the average yearly return, making it easier to compare investments of different durations. A 50% ROI over 5 years equals about 8.45% annualized.

Does ROI include dividends and fees?

ROI should include all gains (capital appreciation, dividends, interest) and all costs (purchase price, fees, commissions, taxes). This gives you the true net return on your investment.

What is ROI?

Return on Investment (ROI) is a performance measure used to evaluate the efficiency and profitability of an investment. ROI measures the amount of return on an investment relative to the investment's cost.

ROI Formula

The basic ROI formula is:

• ROI = ((Final Value - Initial Investment) / Initial Investment) × 100
• Result is expressed as a percentage
• Positive ROI means profit, negative ROI means loss

ROI Components

• Total Return: The dollar amount gained or lost (Final Value - Initial Investment)
• ROI Percentage: The percentage return on your original investment
• Investment Period: Time the investment was held
• Annualized ROI: Average yearly return (useful for comparing investments of different durations)

Example Calculation

If you invested $10,000 and it grew to $15,000:

• Total Return: $15,000 - $10,000 = $5,000
• ROI: ($5,000 / $10,000) × 100 = 50%
• Annualized ROI (5 years): 8.45% per year

This means you earned a 50% total return, which translates to an average of 8.45% per year over 5 years.

Why Calculate ROI?

• Compare Investments: Evaluate different investment opportunities
• Measure Performance: Track how well your investments are doing
• Make Decisions: Determine if an investment is worth it
• Plan Future Investments: Use historical ROI to set expectations

ROI Benchmarks

Different investments have different typical ROI ranges:

• Stock Market: 8-10% annually (long-term average)
• Real Estate: 8-12% annually (including appreciation and rental income)
• Bonds: 3-5% annually
• Small Business: Varies widely, often 15-30% for successful ventures
• Savings Accounts: 1-3% annually

Factors Affecting ROI

• Market Conditions: Economic factors and market volatility
• Investment Type: Stocks, bonds, real estate, etc. perform differently
• Time Horizon: Longer investments often see higher returns
• Fees and Taxes: Reduce overall returns
• Risk Level: Higher risk typically means potential for higher ROI