Calculate Return on Investment
ROI = ((Final Value - Initial Investment) / Initial Investment) × 100. Annualized ROI = ((Final Value / Initial Investment)^(1/years) - 1) × 100. The money multiple shows how many times your original investment has grown.
ROI is the most fundamental investment metric, showing the efficiency of your investments. It allows comparison across different asset types - stocks, real estate, business ventures - using a standardized percentage format.
Total ROI shows overall return but doesn't account for time. A 50% return over 10 years is very different from 50% in one year. Annualized ROI (CAGR) normalizes returns to an annual rate, enabling fair comparisons.
Consider risk alongside returns - higher ROI usually means higher risk. Factor in all costs including taxes and fees. Compare to benchmark indices like the S&P 500. Remember past performance doesn't guarantee future results.
ROI (Return on Investment) is a financial metric that measures the profitability of an investment as a percentage. It is calculated as ROI = ((Final Value - Initial Investment) / Initial Investment) × 100. For example, if you invest $10,000 and it grows to $15,000, your ROI is 50%. ROI is widely used because it is simple, versatile, and allows comparison across different types of investments.
A good ROI depends on the investment type and associated risk. The S&P 500 has historically returned about 10% annually (7% after inflation), so any investment consistently exceeding this is considered strong. Real estate typically targets 8-12% annually. For business investments, 15-25% ROI is often expected to justify the risk. A risk-free benchmark is the Treasury bond yield, currently around 4-5%.
ROI shows the total return over the entire investment period regardless of time, while annualized return (CAGR) normalizes the return to a yearly rate. For example, a 100% total ROI sounds impressive, but if it took 10 years, the annualized return is only about 7.2%. Annualized return is more useful for comparing investments held for different lengths of time, as it provides an apples-to-apples comparison.