How to Calculate Return on Investment (ROI)

Return on Investment (ROI) is the most fundamental measure of investment performance. Every investor should understand how to calculate and interpret it.

Basic ROI Formula

ROI = (Current Value - Cost) / Cost × 100. If you bought stock for $10,000 and it is now worth $13,000, your ROI is 30%. Simple and intuitive.

Annualized Returns

ROI does not account for time. A 30% return in 1 year is very different from 30% over 10 years. Annualized return uses the formula: (1 + ROI)^(1/years) - 1. Use our Investment Return Calculator for instant results.

Real vs Nominal Returns

Nominal returns do not account for inflation. If your investment returned 8% but inflation was 3%, your real return was about 5%. Always consider inflation when evaluating long-term performance.

Comparing Investments

Use annualized ROI to compare investments with different time horizons. Also consider risk: a 10% return from bonds is more impressive than 10% from volatile stocks because bonds carry less risk.

Common Pitfalls

Do not ignore fees and taxes when calculating returns. A fund returning 8% with 1% annual fees effectively returns 7%. Capital gains taxes further reduce your actual returns.