What is annualized ROI and why does it matter?

It converts any holding period to a per-year rate: ((1 + ROI)^(1/years) − 1). A 40% ROI is spectacular over 1 year (40%/yr) but mediocre over 10 years (3.4%/yr) — annualizing makes investments with different timelines comparable.

ROI Calculator

Q: How do you calculate ROI?

ROI = (Final value − Total cost) ÷ Total cost × 100. Buy for $10,000, sell for $14,000: ROI = 4,000 ÷ 10,000 = 40%.

Q: What counts as a good ROI?

Judge annualized ROI against alternatives: roughly 10% per year matches long-run stock market averages, 4-5% matches low-risk savings. Anything promising far above market returns with low risk deserves deep skepticism.

Total return and — the number that actually matters for comparing investments — the annualized return.

Return on investment

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Net profit

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Annualized return

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vs. ~10%/yr stock average

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The ROI formulas

ROI = (Final − Cost) ÷ Cost × 100
Annualized = [(Final ÷ Cost)^1/years − 1] × 100

Worked example

Invested $10,000, now worth $14,000 after 3 years:

ROI = 40% total · Annualized = (1.4)^1/3 − 1 = 11.9% per year — slightly ahead of long-run stock averages.

Using ROI without fooling yourself

Three classic traps. Ignoring time: "I doubled my money" means 26%/yr over 3 years but only 7.2%/yr over 10 — always annualize (that's just CAGR). Ignoring costs: commissions, taxes, maintenance (for property), and your own time all belong in the cost basis. Ignoring risk: a 15% return on a speculative bet and 10% on an index fund aren't equally good outcomes — one of them could easily have been −50%. For repeated cash flows (rent, dividends), simple ROI understates reality; see the dividend calculator for income-producing assets.

Frequently asked questions

How do you calculate ROI?

(Final − Cost) ÷ Cost × 100. $10,000 → $14,000 = 40%.

What is annualized ROI?

The per-year rate: (1+ROI)^1/years − 1. It makes different holding periods comparable.

What counts as a good ROI?

Compare annualized ROI to ~10%/yr stock averages and ~4–5% low-risk yields — and be skeptical of "high return, low risk" claims.

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Note: Simple ROI ignores cash-flow timing; for irregular flows, IRR-based measures are more accurate. Not investment advice. Last reviewed: July 2026.