ROI Calculator

Result Interpretation

Total ROI measures the simple percentage gain or loss over the entire life of the investment. While this is a useful benchmark for overall profitability, it does not account for the time it took to achieve that return.

Annualized ROI (CAGR) provides a clearer comparison by showing the mean annual growth rate. This allows you to benchmark different investments against each other even if they were held for different periods of time. A typical range for long-term investments varies significantly by asset class, with historical equity benchmarks often cited between 7-10%.

This interpretation is provided for educational context and does not evaluate the quality of any specific investment outcome.

Real-Life Example

If you invested $20,000 in a business venture and sold your stake for $30,000 after 5 years, your total ROI would be 50%. However, your annualized ROI would be approximately 8.45%, which provides a more accurate metric for comparing this venture to other annual return benchmarks.

Things to Watch

• Taxes and Fees: ROI calculations often ignore capital gains taxes, transaction fees, and management costs, which can significantly lower your net return.
• Dividends and Cash Flow: If an investment provides regular income (like dividends or rent), these should be added to the final value to get a complete ROI picture.
• Time Value of Money: $1,000 in profit earned in one year is generally considered different from $1,000 earned over ten years due to inflation and opportunity cost.

FAQ

Next Steps