How to calculate ROI
Return on investment (ROI) measures how much you gained or lost compared with what you put in:
ROI = (amount returned − amount invested) ÷ amount invested × 100
Investing $10,000 and getting back $15,000 is a 50% ROI. A negative ROI means you lost money.
Why annualized ROI matters
A 50% return over 3 years is very different from 50% over 10 years. Annualized ROI spreads the gain over the holding period as a yearly compound rate, so you can compare investments of different lengths. Here, 50% over 3 years is about 14.5% a year.
Tips for an honest ROI
- Include every cost: fees, commissions, taxes, repairs, insurance and your own interest costs.
- Include all income, such as dividends, rent or interest received.
- Compare with a simple benchmark, like an index fund or a CD, over the same period.
Frequently asked questions
What is a good ROI?
It depends on the risk. Many investors compare with the long-run return of a broad stock index. A safe investment with a lower ROI can be better than a risky one with a higher ROI.
What is the difference between ROI and IRR?
ROI looks only at the start and end amounts. IRR also accounts for when each payment happens, which matters when money goes in or out more than once.
How do I calculate ROI on a rental property?
Divide your yearly cash profit after all expenses by the cash you invested, including the down payment and closing costs. This is called cash-on-cash return.