Return on Investment Calculator
Return as a plain percentage and annualised, so a long hold is not mistaken for a good one.
In short
Return on investment is gain minus cost, divided by cost. A thousand pounds becoming thirteen hundred is a thirty percent return. Over five years that is only five and a half percent a year, which is why the annualised figure matters far more than the headline for anything held longer than a year.
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The formula, and the one that actually matters
ROI = (final - initial - costs) / initial x 100
CAGR = ((final / initial) ^ (1 / years) - 1) x 100The first is the headline. The second is the one to compare with, because it puts every investment on the same footing regardless of how long it was held.
A 30% total return sounds identical in both cases below, and the two are not remotely comparable:
| Held for | Total return | Annualised | Verdict |
|---|---|---|---|
| 1 year | 30% | 30% | Excellent |
| 3 years | 30% | 9.1% | Good |
| 5 years | 30% | 5.4% | Modest |
| 10 years | 30% | 2.7% | Below inflation |
Anyone quoting a total return without the period is either being careless or hoping you will not ask.
Costs people leave out
ROI is only as honest as the cost side, and the cost side is where flattering numbers come from.
- Transaction fees on the way in and the way out.
- Ongoing charges. A 0.5% annual platform fee is over 8% of a 6% return, every year, compounded.
- Tax on gains, which is a real reduction in what you keep.
- Maintenance and holding costs for property, vehicles or equipment.
- Your own time. The most commonly omitted and often the largest. A side project returning 5,000 on 1,000 of materials looks like a 400% return until you count the 200 hours.
- Opportunity cost. What the money would have earned somewhere safe. Beating zero is not the bar; beating the alternative is.
Inflation is not optional over long periods
Nominal returns describe the number. Real returns describe what it buys.
Turning 10,000 into 13,000 over five years is 5.4% a year nominal. At 2.5% inflation that is roughly 2.8% real, and your 13,000 buys about what 11,500 would have bought when you started.
Over decades this dominates everything. A 7% nominal return during 3% inflation doubles your purchasing power in about 18 years, not the 10 the nominal figure suggests.
The rule of 72
Divide 72 by the annual return to estimate the years until money doubles. At 6%, twelve years. At 9%, eight. It is accurate enough between roughly 4% and 12% to do in your head, and it makes the cost of fees vivid: a 1% platform charge on a 7% return pushes doubling from about 10 years to about 12.
What ROI cannot tell you
Risk. Two investments returning 8% are not equivalent if one was a government bond and the other a single company that nearly failed. ROI is calculated after the fact and says nothing about how likely the outcome was.
Sequence. A steady 8% and a wild ride averaging 8% end in the same place only if you never had to sell partway through.
Survivorship. The return you can calculate is on the thing you still hold. Portfolios and businesses look considerably better when the failures are left out of the arithmetic.
Whether it will continue. An ROI is a measurement of the past. It is evidence about the future only to the extent that the conditions producing it persist.
Arithmetic for comparing outcomes, not financial advice. Past returns do not indicate future ones, and investments can lose value.
Frequently asked questions
How do I calculate return on investment?
Subtract what you put in from what you got out, then divide by what you put in. Invest 1,000 and finish with 1,300 and the return is 300 divided by 1,000, or 30%. Include every cost, not just the purchase price.
Why does the annualised figure matter more?
Because a 30% return says nothing about how long it took. Over one year that is excellent. Over ten it is 2.7% a year, which is below inflation and worse than a savings account. Any comparison between investments held for different periods has to be annualised or it is meaningless.
What is CAGR?
Compound annual growth rate, the annualised figure shown here. It is the steady yearly rate that would take you from the starting value to the ending value over the period. Real returns are never that smooth, but it makes different holding periods comparable.
Should I adjust for inflation?
For anything held more than a couple of years, yes. A 6% return during 4% inflation is a real gain of under 2%. The nominal number flatters itself, and over a decade the difference between nominal and real is the difference between feeling wealthy and being wealthy.
Does this work for business investments?
The arithmetic does. The difficulty is capturing every cost honestly, particularly your own time, which is the cost people most often leave out and the one that most often turns an apparent profit into a loss.