ROI Calculator (Return on Investment)

Calculate Return on Investment (ROI) and Annualized ROI with precision. Analyze investment efficiency over time with our compounding growth projector.

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About

Return on Investment (ROI) is the universal benchmark for profitability, serving as the first line of defense against poor financial decision-making. Whether you are a venture capitalist evaluating a startup, a real estate investor assessing a property, or a business manager justifying a software purchase, ROI cuts through complexity to answer a single question: Is this capital being used efficiently?

However, simple ROI often misleads by ignoring the element of time. A 20% return over 10 years is significantly worse than a 15% return over one year. This tool addresses that gap by calculating both the standard ROI and the Annualized ROI (CAGR), providing a time-adjusted metric that allows for an apples-to-apples comparison between investments of different durations.

annualized return

Formulas

The standard Return on Investment calculation determines the total percentage growth:

ROI = Vfinal − VinitialVinitial × 100

To account for the time period (time value of money), we calculate the Annualized ROI (CAGR):

ROIannualized = [(1 + ROIdecimal)1t − 1] × 100

Reference Data

Investment TypeTypical ROI (Annualized)Risk ProfileTime Horizon
Savings Accounts0.5% - 4.5%Very LowShort Term
Government Bonds (US)3.5% - 5.0%LowMedium Term
S&P 500 (Historical Avg)9.8% - 10.5%MediumLong Term (>10y)
Real Estate (Rental)8% - 15%MediumLong Term
Corporate Bonds4% - 8%Low/MediumMedium Term
Venture Capital-100% to 500%+Very High5-7 Years
Small Business15% - 30%HighIndefinite
High-Yield Savings4% - 5%LowShort Term

Frequently Asked Questions

Simple ROI only tells you the total gain, not how long it took to achieve it. A 50% ROI sounds excellent, but if it took 20 years to achieve, the annual return is less than 2%, which is likely below inflation. Annualized ROI normalizes the return to a one-year period, allowing you to compare a 6-month investment against a 5-year investment accurately.
The standard ROI formula assumes a lump sum investment at the beginning. If you are making monthly or yearly contributions (Dollar Cost Averaging), you should use a Time-Weighted Return (TWR) or Money-Weighted Return (MWR/IRR) calculation instead, as simple ROI will skew the results based on when cash flowed into the account.
No, this is a 'Nominal' ROI calculation. To get the 'Real' ROI, you must subtract the inflation rate from the result. Similarly, net ROI would require deducting capital gains taxes from the final value before calculation.
A negative ROI indicates a loss. If the final value of the investment is lower than the initial cost, the numerator in the formula becomes negative. For example, an ROI of -20% means you have lost 20% of your initial capital.