What is Return on Investment (ROI)?

Return on Investment (ROI) is a performance measure used to evaluate the efficiency or profitability of an investment. It is calculated by dividing the net profit from an investment by its initial cost. The result is typically expressed as a percentage.

What is the difference between ROI and Annualized ROI?

Total ROI tells you the total return over the entire investment period. Annualized ROI (also known as Compound Annual Growth Rate or CAGR) tells you the annual rate of return, which makes it much easier to compare different investments held for different lengths of time.

What is considered a 'good' ROI?

A 'good' ROI is relative and depends on the type of investment and its risk level. Historically, a good average annual ROI for the stock market (like an S&P 500 index fund) is considered to be around 8-10%. For safer investments like bonds, a good ROI might be 3-5%. The higher the risk, the higher the potential ROI should be to justify it.

Investment ROI Calculator

Net Profit

Total ROI

Annualized ROI

The Merchant's Question: How ROI Shaped the Modern World

At its heart, Return on Investment (ROI) answers one of the oldest and most important questions in commerce: "Was it worth it?" This simple calculation is the bedrock of modern finance, but its roots lie in the risky voyages of 17th-century merchant ships.

The Birth of the Public Company

In 1602, the Dutch East India Company (VOC) became the world's first publicly traded company. It needed vast sums of money to fund dangerous, years-long voyages to Asia to trade for spices. The risk was enormous—ships could sink, pirates could attack, or trade deals could fall through.

To fund these ventures, the VOC did something revolutionary: it sold shares to the public. For the first time, ordinary citizens could invest in a commercial enterprise. When a ship returned laden with valuable spices, the profits were divided among the shareholders. Their "return on investment" could be massive, but they could also lose everything. This concept of pooling capital and sharing in the profits and losses laid the groundwork for every stock market in the world today.

Your Investment Journey

Whether you're investing $100 in a stock or buying a rental property, you are asking the same question as those early Dutch merchants. This ROI calculator helps you answer that question with precision, turning a gut feeling into a hard number. It's the essential first step in measuring your success and making smarter financial decisions for the future.

Frequently Asked Questions

How is ROI calculated?

The basic formula for ROI is: ROI (%) = ( (Final Value - Initial Investment) / Initial Investment ) * 100. This gives you the total percentage return over the entire life of the investment.

Why is Annualized ROI important?

Annualized ROI (or CAGR) is crucial for comparing investments. An investment that returns 50% in 1 year is much better than one that returns 50% over 5 years. By showing the average annual return, it allows for a true "apples-to-apples" comparison, regardless of how long each investment was held.

Does ROI include additional costs or contributions?

This basic ROI calculator does not factor in additional costs like taxes, commissions, or maintenance fees, nor does it account for additional contributions over time. For a simple, quick measure of a single investment, it is highly effective. For investments with ongoing contributions, our Compound Interest Calculator may be a more suitable tool.