Return on investment (ROI) measures how much you gained or lost relative to what you put in. Add how long you held the investment to see the annualized return, which lets you compare investments held for different lengths of time.
Formula
ROI = (Amount returned − Amount invested) ÷ Amount invested × 100
Annualized ROI = (Amount returned ÷ Amount invested)^(1 ÷ years) − 1. It is the same as the compound annual growth rate (CAGR).
Worked example
Investing $10,000 and getting back $13,500 is a 35% ROI. Over 3 years that works out to about 10.52% a year, because the gains compound.
Frequently asked questions
What is a good ROI?
It depends on risk and time. Broad stock market indexes have historically returned around 7–10% a year before inflation, which is a common benchmark.
Why is annualized ROI lower than total ROI divided by years?
Because returns compound. 35% over 3 years is not 11.67% a year — growing 10.52% a year for 3 years gives the same 35%.
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