ROI Calculator

How this is worked out

The headline figure is simple:

ROI = (what you got back − what you put in) ÷ what you put in × 100

The important one is underneath it. Annualised return converts the total into an equivalent steady yearly rate:

annualised = (final ÷ initial)^(1 ÷ years) − 1

This matters because total ROI says nothing about time, and time is most of the story. A 45% return is excellent over one year and mediocre over ten. Two investments cannot be compared on total ROI unless they were held for exactly the same period — and they almost never were.

The root, rather than a simple division by the number of years, is there because returns compound. Earning 45% over three years is not 15% a year; it is about 13.2% a year, because each year's growth builds on the last.

A worked example

Invest 10,000, sell for 14,500 after 3 years, no income or fees:

• Total return: 45%
• Annualised: 13.2%
• Money multiple: 1.45×

Now compare that with a different investment: 10,000 turning into 13,000 in 18 months. Its total ROI is only 30% — lower — but annualised it is 19.3%, considerably better. Judged on the headline number you would have picked the wrong one.

Fees change the picture more than people expect. Add 500 of costs to the first example and the annualised return falls from 13.2% to 11.8%. On a three-year hold, 5% of the initial investment in fees consumed more than a tenth of the annual return.

What this doesn't cover

• This assumes money went in once at the start and came out at the end. If you added funds along the way, ROI overstates your performance — that situation needs an internal rate of return calculation instead.
• Inflation is not deducted, so the result is a nominal return. Subtract inflation from the annualised figure to get the real one.
• Tax is only included if you enter it under costs.
• Return says nothing about risk. A 20% annualised return that could have been −60% is not obviously better than a steady 8%.

Common questions