What is ROI?
ROI (Return on Investment) measures the efficiency of an investment by comparing the gain or loss relative to the cost. It's expressed as a percentage and helps you compare different investment opportunities on equal footing.
ROI Formula
ROI = ((Final Value - Initial Investment) / Initial Investment) × 100
This simple formula works for any investment where you know the starting value and ending value.
Example Calculation
Initial Investment
You invest $1,000 in a stock.
Final Value
After one year, the stock is worth $1,200.
Calculate ROI
ROI = (($1,200 - $1,000) / $1,000) × 100 = 20%
A 20% ROI means you earned $20 for every $100 invested. Positive ROI = profit; negative ROI = loss.
Annualized ROI
When comparing investments of different durations, use annualized ROI to put them on equal footing.
Annualized ROI = ((1 + ROI)^(1/years) - 1) × 100
For example, a 50% return over 3 years = approximately 14.5% annualized return.
Beyond the Numbers
ROI is a useful starting point, but smart investors also consider:
Risk
Higher potential returns usually come with higher risk. A 20% ROI from bonds differs vastly from 20% from crypto.
Time Horizon
A 20% return in 1 year is very different from 20% over 10 years. Always annualize for comparison.
Costs & Fees
Management fees, transaction costs, and taxes reduce your actual return. Calculate net ROI after costs.
ROI is a powerful tool for comparing investments, but always consider risk, time horizon, and fees alongside the headline number.
Calculate Your Investment ROI
Model different scenarios and see how your investments could grow over time.
Use Our Calculator