How ROI is calculated
Return on investment is your net gain divided by the amount you invested, as a percentage: (final value − initial) ÷ initial × 100. It's the simplest way to express how much an investment made relative to its cost, and it works for anything from stocks to a marketing campaign.
Why annualized return matters more
Raw ROI ignores time. A 50% return is excellent in one year but mediocre over ten. The annualized return converts total ROI into an equivalent yearly rate, so you can compare investments held for different lengths of time on equal footing — it's the honest number for judging performance.
What ROI leaves out
Plain ROI doesn't account for additional contributions, dividends reinvested, fees or taxes. For a portfolio you add to over time, pair this with a compound interest or CAGR calculation. Always compare after-fee, after-tax returns where you can, since those are what you actually keep.
Using ROI to decide
ROI is a comparison tool: line up options by annualized return and by risk. A higher ROI that came with far more risk isn't automatically better. Use the figures here as a starting point, then weigh liquidity, risk and your time horizon before committing.
Frequently asked questions
How do I calculate ROI?
Subtract the amount invested from the final value, divide by the amount invested, and multiply by 100. A $10,000 investment now worth $15,000 has a 50% ROI.
What is annualized return?
It's ROI expressed as an equivalent yearly rate, accounting for how long you held the investment. It lets you compare investments held for different periods fairly.
Is a higher ROI always better?
Not necessarily — a higher return often comes with higher risk, and raw ROI ignores time. Compare annualized, risk-adjusted returns rather than headline percentages.
Does this include fees and taxes?
No. It's a gross return based on your inputs. For the true figure, use after-fee, after-tax values, which can be meaningfully lower.