ROI calculator (return on investment)

What ROI measures

Return on investment (ROI) is the simplest measure of how well money did: the gain or loss as a percentage of what was put in. It works for almost anything with a cost and a result, a share, a property, a trading account, a marketing campaign or a piece of equipment, which is why it is the first number most people reach for.

The "amount returned" is whatever the investment produced: the sale proceeds, or its current value if you still hold it, plus any income it paid along the way (dividends, rent, interest). The "amount invested" is everything it cost: the purchase price plus fees, commission and other costs you want to count. ROI is only as honest as those two inputs. Leave out a $200 fee and the ROI is flattered by exactly that much.

ROI has one big blind spot: time. It treats a 30% gain as 30% whether it took a month or a decade. That is why the calculator asks, optionally, how long the money was invested, and converts the result into an annualised ROI: the yearly rate that, compounded, produces the same overall result. That is the figure to compare against a savings rate, a fund's yearly return, or another investment held for a different length of time.

The ROI and annualised return formulas

ROI = (Returned − Invested) ÷ Invested × 100

A result above zero is a gain, below zero a loss, and −100% means everything was lost. Dividing returned by invested gives the multiple: 1.30× means every dollar became $1.30.

Annualised ROI = (Returned ÷ Invested)^1/years − 1

Enter the length in months and the calculator divides by 12 first, so 18 months is 1.5 years. This is the same calculation as the compound annual growth rate; the CAGR calculator adds a year-by-year growth table and can run it backwards from a rate.

When an investment is in loss, the gain needed to recover is Invested ÷ Returned − 1. A position that fell from $5,000 to $4,000 (−20%) needs to rise 25% to get back to $5,000, because the 25% is earned on the smaller amount. The drawdown calculator tabulates this for any size of loss.

A worked example (hypothetical)

You put a hypothetical $5,000 into an investment and three years later it is worth $6,500, including any income it paid.

1. Gain: $6,500 − $5,000 = $1,500.
2. ROI: $1,500 ÷ $5,000 = 30%, a multiple of 1.30×.
3. Annualised: 1.30^1/3 − 1 = 9.14% a year.

The simple shortcut, 30% ÷ 3 = 10% a year, overstates it, because it ignores that the second and third years grow on a larger balance. The table under the calculator shows the same 30% ROI over other lengths: 69.00% a year if it had taken six months, 14.02% over two years, 5.39% over five years and 2.66% over ten. Same ROI, very different results.

Now the other direction: $5,000 that is worth $4,000 is an ROI of −20%, a loss of $1,000, and needs a 25% gain to recover. These are illustrations with made-up round numbers. A past ROI, however good, does not predict what the same investment does next.

How annualising changes the picture

Annualising is what turns ROI from a description of one result into a number you can compare. Two hypothetical cases show why it matters.

Same ROI, different speed. Investment A turns $5,000 into $6,500 over 3 years. Investment B turns $2,000 into $2,600 over 18 months (enter 18 and choose months). Both show an ROI of exactly 30%. Annualised, A is 9.14% a year and B is 19.11% a year, because B got there in half the time. If you could have repeated B's result, the money would have been free for another 18 months.

Bigger ROI, worse result. A 50% ROI over 10 years sounds better than a 30% ROI over 3 years. Annualised, the 50% is only 4.14% a year, less than half the 9.14% of the shorter investment. Headline ROI rewards patience the investment did not earn.

Annualising also exposes the opposite problem. A 50% ROI in one year is 50% annualised; a 30% ROI in six months annualises to 69.00%. The arithmetic is right, but it assumes a short burst would repeat, and short bursts are exactly the results least likely to repeat. Read annualised figures for periods under a year with that in mind.

The simple version (ROI divided by years) is shown next to the compound one so you can see the difference: 10% against 9.14% in the main example, 20% against 19.11% in case B. The compound figure is the correct one to compare with interest rates or fund returns.

Common ROI mistakes

Annualising a short, lucky period. A 10% gain in three months annualises to 46.41% a year, because the formula assumes it repeats four times. It almost never does. For anything under a year, quote the plain ROI and the period; the calculator flags this case.

Forgetting costs and income. Commission, platform fees, stamp duty, spreads and tax all belong in the amount invested or come off the amount returned. Dividends and interest received belong in the amount returned. Missing either side distorts the result.

Ignoring money added along the way. ROI assumes one amount went in at the start. If you kept adding money, the overall gain includes returns on deposits that were invested for less time. A money-weighted return (XIRR in a spreadsheet) handles that properly.

Comparing ROI without risk. Two investments with the same annualised ROI are not equal if one could have halved along the way. In leveraged trading in particular, ROI on margin can look large while the risk to the account is larger still. The lot size calculator and the risk management guide cover how traders size positions so a single loss stays small.

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