EachCalculatorROI Calculator
Calculate Return on Investment (ROI) — the percentage gain or loss on an investment relative to its cost, plus an annualized rate if held over multiple years.
Gain
$4,000.00
ROI
40%
Annualized ROI
11.87%
How It Works
The ROI formula
ROI = (final value − initial investment) ÷ initial investment × 100 — a straightforward percentage return over the entire holding period.
Annualized ROI
Total ROI doesn't account for how long the investment was held — annualized ROI converts the total return into an equivalent yearly rate, making it possible to compare investments held for different lengths of time.
Example Calculation
An investment of $1,000 that grows to $1,250 has a 25% total ROI. If that took 5 years, the annualized ROI is only about 4.6% per year.
Common Mistakes
- Comparing total ROI between investments held for very different time periods without annualizing — a 25% return over 1 year is very different from 25% over 10 years.
- Forgetting to account for fees, taxes, or inflation, which reduce the real-world return compared to the raw calculated ROI.
Frequently Asked Questions
- Why does annualized ROI matter?
- It converts returns to a consistent yearly basis, making it possible to fairly compare an investment held for 2 years against one held for 10 years.
- Does ROI account for risk?
- No — ROI only measures return, not risk. Two investments with the same ROI can carry very different levels of risk.