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How to Calculate Return on Investment
Simple ROI vs Annualized ROI
ROI Benchmarks by Investment Type
Limitations of ROI as a Metric
Frequently Asked Questions
Basic ROI = (Final Value - Initial Investment) / Initial Investment x 100. If you invested $50,000 and it is now worth $75,000, your ROI is ($75,000 - $50,000) / $50,000 x 100 = 50%. This tells you the total percentage return.
Annualized ROI adjusts the return to a yearly rate, making it easy to compare investments held for different periods. The formula is: ((Final/Initial)^(1/Years) - 1) x 100. A 50% return over 3 years is about 14.5% annualized.
It depends on the investment type and risk. The S&P 500 averages about 10% annually. Real estate typically returns 8%–12% including appreciation and rental income. Bonds average 4%–6%. Any investment consistently beating the S&P 500 is performing well.
Basic ROI does not account for inflation. For a real (inflation-adjusted) ROI, subtract the inflation rate from your annualized return. A 10% nominal ROI with 3% inflation gives a real ROI of about 7%. Always consider inflation for long-term investments.