How to calculate ROI
- Enter the Amount invested, including any fees you paid to get in.
- Enter the Amount returned: what you sold for or what the investment is worth now, plus any income it paid.
- Add the Years held to see the yearly return, or set it to 0 for the total return only.
Same ROI, very different investments
ROI on its own ignores time. A 40% return is excellent in one year and modest over ten. The yearly return (CAGR) puts investments held for different lengths of time on the same footing:
| Years held | Total ROI | Yearly return |
|---|---|---|
| 1 | 40% | 40% |
| 3 | 40% | 11.87% |
| 5 | 40% | 6.96% |
| 10 | 40% | 3.42% |
Compare the yearly figure with what the money could have earned elsewhere, such as the interest on a savings account, to judge whether the risk was worth it.
Getting an honest number
What you count decides the answer. Include buying and selling fees, commissions and taxes paid in the amount invested or take them off the amount returned. Add dividends, interest or rent you received to the amount returned. For a business project, count the cost of staff time and tools, not just the cash spent.
If you added money at different times, as with monthly savings, the total ROI is still right, but the yearly return comes out too low. The calculator treats all the money as invested on day one, while later deposits were only invested for part of the time.