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Formula
ROI = (V − C) ÷ C × 100; Annualized ROI = ((V ÷ C)^(1/t) − 1) × 100
- ROI
- the total return as a percentage of the amount invested
- V
- the final value, or the total amount you got back
- C
- the amount invested (cost)
- t
- the holding period in years (fractions allowed, such as 1.5)
What ROI measures
Return on investment (ROI) expresses the gain or loss on an investment as a percentage of what you put in. It answers one question: for every dollar invested, how much did I get back beyond that dollar? An ROI of 20% means a gain of 20 cents per dollar; an ROI of −20% means a loss of 20 cents per dollar.
ROI works the same way as a percentage change from the amount invested to the final value, so the percentage change calculator gives the same total figure. The difference here is the optional annualized rate.
How to use the ROI calculator
- Enter the amount invested, including any purchase fees or commissions.
- Enter the amount returned: the sale price or current value, plus any dividends, interest or other income you received, minus any fees on sale.
- Optionally, enter the holding period in years. You can use fractions, such as 0.5 for six months or 2.25 for two years and three months.
The result shows the ROI, the net gain or loss in dollars and, if you entered a holding period, the annualized ROI. The working lines show each calculation. To convert a holding period between two dates into years, the date difference calculator gives the exact number of days, which you can divide by 365.
Annualized ROI per year
Total ROI ignores time, which makes it hard to compare investments held for different lengths of time. A 30% gain sounds better than a 20% gain, but not if the 30% took ten years and the 20% took two.
The annualized ROI converts the total into the steady yearly rate that would produce the same result if the investment had compounded at that rate every year. This is the compound annual growth rate (CAGR). It assumes gains are reinvested, so it is always lower than the total ROI divided by the number of years when the investment gained over periods longer than a year. For holding periods under one year, annualizing scales the result up, which can make a short-term gain look much larger than it is.
Same ROI, different holding periods
$10,000 that grows to $15,000 is a 50% ROI regardless of how long it took. The annualized figure changes a great deal. Values are calculated with the formula the calculator uses and rounded to two decimal places.
| Holding period | Total ROI | Annualized ROI (CAGR) | Total ROI ÷ years |
|---|---|---|---|
| 6 months | 50% | 125% | 100% |
| 1 year | 50% | 50% | 50% |
| 2 years | 50% | 22.47% | 25% |
| 3 years | 50% | 14.47% | 16.67% |
| 5 years | 50% | 8.45% | 10% |
| 10 years | 50% | 4.14% | 5% |
| 20 years | 50% | 2.05% | 2.5% |
The last column shows why simple division misleads: for every period longer than a year it overstates the compound yearly rate, and for periods under a year the annualized rate itself becomes extreme.
How to calculate ROI by hand
Suppose $2,000 grew to $4,000 over 8 years.
- Net gain: $4,000 − $2,000 = $2,000.
- ROI: $2,000 ÷ $2,000 × 100 = 100%.
- Growth multiple: $4,000 ÷ $2,000 = 2.
- Annualized: 2^(1/8) − 1 ≈ 1.0905 − 1 = 0.0905, or 9.05% a year.
As a check, 1.0905 multiplied by itself eight times is very close to 2. A spreadsheet or the calculator handles the fractional power; by hand, a scientific calculator’s x^y key does the same.
ROI examples
Comparing two investments held for different periods
Investment A turned $4,000 into $5,200 in 2 years: an ROI of 30% and an annualized return of 14.02%. Investment B turned $6,000 into $8,100 in 4 years: an ROI of 35% but an annualized return of 7.79%. B produced the larger total percentage and more dollars, yet A grew at almost twice the yearly rate. Neither figure says anything about the risk each one carried.
Stock ROI with fees and dividends
Shares bought for $10,000 plus a $50 commission, held for 4 years, paid $600 in dividends and were sold for $12,400 less a $50 commission. The amount invested is $10,050, and the amount returned is $12,400 − $50 + $600 = $12,950. ROI is 28.86% and the annualized return is 6.54%. Counting only the price change from $10,000 to $12,400 would give 24%, which misses both the dividends and the costs. Investor.gov’s bulletin on fees describes how ongoing costs compound against returns over long periods.
ROI on real estate
A home bought for $250,000 and sold for $340,000 six and a half years later shows an ROI of 36% and an annualized return of 4.84% on the price alone. That figure leaves out a lot: closing and selling costs, mortgage interest, property taxes, insurance and maintenance on one side, and any rent saved or collected on the other. Entering the actual cash put in and the actual cash received gives a more meaningful figure, but it still ignores the timing of payments along the way.
Losses and recovery
Losses and gains are not symmetrical. A 20% loss on $10,000 leaves $8,000, and getting back to $10,000 requires a 25% gain on that smaller amount. A 50% loss needs a 100% gain to recover. The ROI calculator’s annualized figure for a loss is the steady yearly decline that would produce the same result; the worked examples below include a $12,000 investment that fell to $10,200 over two years, an ROI of −15% and an annualized return of −7.8%.
Limitations to keep in mind
- Timing of cash flows. If you added money or took money out during the holding period, a single start and end value misstates the return. Brokerage statements often report a time-weighted or money-weighted return that handles this.
- Risk. ROI says nothing about how volatile the investment was along the way, or how likely a similar result is in the future.
- Costs and taxes. Fees reduce returns, and taxes on gains or income reduce what you keep. Include fees in your inputs for an accurate pre-tax figure.
- Inflation. A positive ROI can still mean lower purchasing power if prices rose faster than the investment.
For projecting a steady rate of growth forward, rather than measuring a past result, use the compound interest calculator.
Common mistakes
- Comparing total ROIs over different periods. Annualize first, or compare investments held for the same length of time.
- Dividing total ROI by years. This overstates the compound yearly rate for multi-year holdings.
- Leaving out income and costs. Dividends, interest, commissions and fund expenses all belong in the inputs.
- Reading a past return as a forecast. Regulators caution that past performance does not guarantee future results, and performance claims can be selectively presented.
Glossary
- ROI (return on investment). Net gain or loss divided by the amount invested, as a percentage.
- CAGR (compound annual growth rate). The constant yearly rate that turns the starting value into the ending value over the period.
- Nominal return. A return before adjusting for inflation.
- Real return. A return after adjusting for inflation.
- Time-weighted return. A measure that removes the effect of deposits and withdrawals, used to judge an investment’s own performance.
- Money-weighted return. A measure that reflects the timing and size of your deposits and withdrawals.
Worked examples
An investment sold after three years
You invested $5,000 and sold for $6,500 three years later.
Inputs: Amount invested = $5000; Amount returned (final value) = $6500; Holding period = 3 years
ROI = ($6,500.00 − $5,000.00) ÷ $5,000.00 × 100 = 30% Annualized = ($6,500.00 ÷ $5,000.00)^(1/3) − 1 = 9.14%
Answer: ROI of 30% on $5,000.00 (9.14% a year over 3 years).
An investment sold at a loss
You invested $12,000 and the position was worth $10,200 when you sold it two years later.
Inputs: Amount invested = $12000; Amount returned (final value) = $10200; Holding period = 2 years
ROI = ($10,200.00 − $12,000.00) ÷ $12,000.00 × 100 = −15% Annualized = ($10,200.00 ÷ $12,000.00)^(1/2) − 1 = −7.8%
Answer: ROI of −15% on $12,000.00 (−7.8% a year over 2 years).
A short holding period, annualized
You invested $1,500 and sold for $1,800 six months later. Annualizing a half-year result magnifies it.
Inputs: Amount invested = $1500; Amount returned (final value) = $1800; Holding period = 0.5 years
ROI = ($1,800.00 − $1,500.00) ÷ $1,500.00 × 100 = 20% Annualized = ($1,800.00 ÷ $1,500.00)^(1/0.5) − 1 = 44%
Answer: ROI of 20% on $1,500.00 (44% a year over 0.5 years).
Assumptions and limitations
- The investment is a single amount put in at the start and a single value at the end. Additional contributions or withdrawals along the way are not handled, so the result is not a time-weighted or money-weighted return.
- Dividends, interest or rent are included only if you add them to the final value. Fees and commissions are included only if you add them to the amount invested or subtract them from the final value.
- The annualized ROI is the compound annual growth rate (CAGR), the steady yearly rate that would turn the amount invested into the final value over the holding period. Actual year-to-year returns may have varied widely.
- Taxes and inflation are not modeled. The result is a nominal, pre-tax return.
- A past return does not predict future results.
Frequently asked questions
What is the difference between ROI and annualized ROI?
ROI is the total gain or loss over the whole holding period. Annualized ROI spreads that result evenly across the years as a compound yearly rate. A 50% gain over 2 years and a 50% gain over 10 years have the same ROI, but very different annualized returns.
Why isn't annualized ROI just the total ROI divided by the number of years?
Dividing assumes the gains don't compound. Returns build on each other, so the yearly rate that produces a given total is lower than the simple average. A 100% gain over 10 years is about 7.18% a year compounded, not 10%.
Should I include dividends and fees?
Yes, for a true picture. Add dividends, interest or other income you received to the final value, and add purchase and sale fees to the amount invested. Leaving them out overstates or understates the return.
Can ROI be negative?
Yes. If the final value is below the amount invested, ROI is negative and the calculator shows a net loss. If the final value is zero, ROI is −100%, meaning the whole investment was lost.
Why is the annualized figure so large for a holding period under a year?
Annualizing assumes the same result repeats and compounds for a full year. A 20% gain in six months annualizes to 44%, but nothing guarantees the second half-year would match the first. The calculator labels these results to flag the effect.
Does a 20% loss followed by a 20% gain get me back to even?
No. $10,000 that falls 20% is worth $8,000, and a 20% gain on $8,000 brings it to $9,600. Recovering from a 20% loss takes a 25% gain, because the gain is measured on the smaller balance.
How do you calculate ROI on rental property?
For the total return over the time you owned it, enter all the cash you put in, such as the down payment, closing costs and repairs, as the amount invested. Enter the cash you got back as the amount returned, which is the sale proceeds after selling costs and any mortgage payoff, plus rent collected minus expenses and mortgage payments. Landlords also quote a yearly cash-on-cash return, which is one year's net rental cash flow divided by the cash invested.
Sources
- Evaluating Performance — FINRA. Checked October 4, 2026.
- Investor Bulletin: Performance Claims — U.S. Securities and Exchange Commission, Investor.gov. Checked October 4, 2026.
- How Fees and Expenses Affect Your Investment Portfolio – Investor Bulletin — U.S. Securities and Exchange Commission, Investor.gov. Checked October 4, 2026.