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Financial · Live

Return on investment, measured properly.

Find your total ROI, your annualized growth rate (CAGR), and the dollars of profit behind both. Then compare against the benchmarks every investor is implicitly racing: inflation, cash savings, and the broad market.

ROI guideReal-time

Inputs

Investment details

$
$
years

Formulas

ROI = (final − initial) ⁄ initial × 100

CAGR = ((final ⁄ initial)^(1 ⁄ years) − 1) × 100

Investment summary

Real-time
+85%

Over 5 years, annualized +13.09% CAGR

Initial cost vs net profitFinal: $18,500.00
Initial cost$10,000.00Net profit$8,500.00
Total profit
$8,500.00
Total ROI
+85%
Annualized (CAGR)
+13.09%
Your money: 1.85×

Benchmarks

What if you'd earned X instead?

5y
BenchmarkAnnual %vs you
Your investment+13.09%—
Bank savings (HYSA)
Low-risk, FDIC-insured
4.0%+$6,333.47
Inflation (CPI)
What you must beat to grow real wealth
3.0%+$6,907.26
S&P 500 (long-run)
Pre-tax, dividend-reinvested
10.0%+$2,394.90
10-year Treasury
Risk-free baseline
4.5%+$6,038.18

Field guide

What ROI actually measures.

Return on investment is the simplest possible profitability ratio: how much you got out, divided by how much you put in, expressed as a percent.

ROI = (final value − initial cost) ⁄ initial cost × 100

Buy a stock for $10,000, sell it for $12,500, and your ROI is +25%. That answer is true. It's also nearly useless without one more piece of information: how long did it take? Twenty-five percent over one year is a phenomenal return. Twenty-five percent over twenty years is a defeat.

ROI vs. Annualized ROI: Why time matters

Total ROI tells you the magnitude of the trip — how far the investment moved end-to-end. Annualized ROI, usually reported as CAGR (compound annual growth rate), tells you the speed of the trip — the steady yearly rate that, compounded, would have produced the same final value.

CAGR = ((final ⁄ initial)1 ⁄ years − 1) × 100

Suppose two investments both finish at 2× your money:

  • Investment A: doubles in 3 years. Total ROI = +100%. CAGR = 21⁄3 − 1 ≈ 25.99%.
  • Investment B: doubles in 20 years. Total ROI = +100%. CAGR = 21⁄20 − 1 ≈ 3.53%.

Same total ROI. Wildly different investments. A is the kind of return early-stage venture capital chases. B barely outpaces inflation.

Why total ROI is dangerous on its own

Total ROI is what marketing decks lead with — “our fund returned 80% over the cycle” sounds impressive until you ask how long the cycle was. A 10-year “80% return” is a CAGR of just 6.05%, which is below what a passive S&P 500 index fund has historically returned. Always demand the time period.

When CAGR can mislead

  • Volatility hides inside CAGR. A fund that gained 50% then lost 25% has a CAGR of 6.07% over 2 years, same as a fund that quietly grew 6% each year. The ride was not the same.
  • Endpoints matter enormously. A 10-year CAGR computed from a market peak to a market trough will look terrible; the same 10-year period shifted by 6 months can look great. Be suspicious of conveniently-chosen start and end dates.
  • CAGR ignores cash flows. If you added money over time (or withdrew it), CAGR on the start and end balances doesn't tell the right story. For that, you want the money-weighted return, also known as the IRR.

What the formula assumes

ROI in the form above assumes a single lump sum in at the start and a single lump sum out at the end. It is aprice-only return; it doesn't add dividends, interest, or distributions you collected along the way (those would show up by being reinvested into the final value). For investments with periodic contributions, withdrawals, or a stream of income, see the IRR calculator.

What is a good ROI?

There is no single answer, because “good” depends on three things that vary by investor: time horizon, risk taken, and the available alternatives. Two anchor points worth memorising:

  • Inflation sets the floor. If your after-tax return doesn't beat inflation, you lost real purchasing power. In the US, long-run CPI inflation has averaged about 3%/yr.
  • The S&P 500 is the practical benchmark for risky money. The long-run total return — with dividends reinvested, before tax, has been roughly 10%/yr over the last century. It's what a passive, no-skill, no-effort allocation has paid.

Rough goalposts by asset class (long-run, before tax):

  • ~3–5% / year: bank savings, CDs, short-term Treasuries. Risk-free, capacity-limited.
  • ~4–6% / year: investment-grade bonds. Predictable, sensitive to interest-rate moves.
  • ~7–10% / year: broad equity index funds (S&P 500, total market). Real wealth-building speed for patient money.
  • ~10–15% / year: concentrated stock picking, real estate, small-cap value tilts. Dispersion is wide; many investors underperform the index.
  • 20%+ / year: venture, early-stage, leveraged, or speculative. Most attempts at this level lose money. The handful that don't lose, win big.

Three sanity checks before you celebrate any ROI

  1. Did you actually beat the index? If your CAGR is below what an S&P 500 index fund returned over the same period, you took on risk for no reward.
  2. What are you paying in tax? Pre-tax returns are a story. After-tax returns are what fund your life. Long-term capital gains, short-term capital gains, and ordinary income are all taxed differently.
  3. What are you paying in fees? A 1.5% fund fee compounded over 30 years can eat a third of your terminal wealth. Always net out fees before comparing to a benchmark.

Worked example: a 5-year stock trade

Bought in at $10,000, sold at $18,500, held for 5 years.

  • Total profit: $8,500
  • Total ROI: (18,500 − 10,000) ⁄ 10,000 × 100 = 85%
  • CAGR: (18,500 ⁄ 10,000)1⁄5 − 1 ≈ 13.1%

85% sounds great in isolation. 13.1% annualized is the number that matters and it's genuinely above the historical S&P 500 average, so this trade was a real win, not just a long-time-period mirage.