Frequently asked questions
What is the formula for ROI?
ROI = (Gain / Amount Invested) × 100, or equivalently (Final Value - Cost) / Cost × 100. A 44% ROI means you earned 44 cents for every dollar invested. It's the simplest measure of investment performance.
What is annualized ROI and why does it matter?
Annualized ROI converts total return to a yearly equivalent: (1 + ROI)^(1/years) - 1. It's essential for comparing investments of different durations. A 50% ROI over 5 years (annualized ~8.4%) is less impressive than 30% over 2 years (annualized ~14%).
Should I include fees and taxes in the calculation?
For a realistic ROI, yes. Include all costs: purchase fees, commissions, maintenance costs, and taxes in the 'amount invested.' Include all proceeds net of selling fees in the final value. A gross ROI that ignores fees overstates your actual return.
What are the limitations of ROI?
ROI doesn't account for time (unless annualized), risk, opportunity cost, or the size of the investment. A 100% ROI on $100 is less valuable than 10% ROI on $100,000. For a complete picture, consider ROI alongside the holding period, volatility, and what alternative investments were available.
Can ROI be negative?
Yes. A negative ROI means you lost money. If you invested $50,000 and it's now worth $40,000, your ROI is -20%. Enter the actual (lower) final value and the calculator will show the negative return and loss amount.