Return on investment (ROI) measures how much profit you made relative to what you spent. The formula is simple: ROI = (Net Return ÷ Cost of Investment) × 100. Invest $10,000 and walk away with $13,500 — your ROI is 35%. Whether you are evaluating stocks, real estate, a home renovation, or a business decision, ROI is the universal yardstick.
For a full guide to building your portfolio, see Investment Portfolio Basics.
The ROI Formula
ROI (%) = (Net Return ÷ Total Investment Cost) × 100
Net Return = Final Value − Total Cost
This formula works for any investment — stocks, bonds, real estate, savings accounts, or business investments.
Step-by-Step Calculation
- Determine what you invested (purchase price + fees + any additional costs)
- Determine what you received (sale price + any income like dividends or rent)
- Calculate Net Return = Amount Received − Total Cost
- Divide Net Return by Total Cost
- Multiply by 100 to express as a percentage
ROI Calculator: Quick Reference Table
Use this table to find your ROI instantly based on what you invested and what you received back.
| Invested | Returned | Net Return | ROI |
|---|---|---|---|
| $1,000 | $1,100 | $100 | 10.0% |
| $5,000 | $6,250 | $1,250 | 25.0% |
| $10,000 | $11,500 | $1,500 | 15.0% |
| $10,000 | $13,500 | $3,500 | 35.0% |
| $25,000 | $30,000 | $5,000 | 20.0% |
| $50,000 | $55,000 | $5,000 | 10.0% |
| $50,000 | $75,000 | $25,000 | 50.0% |
| $100,000 | $90,000 | −$10,000 | −10.0% |
| $100,000 | $120,000 | $20,000 | 20.0% |
Worked Examples
Example 1: Stock Investment
You buy 100 shares of a stock at $50/share = $5,000 total. You sell 2 years later at $68/share = $6,800. During that time you received $150 in dividends.
- Total received: $6,800 + $150 = $6,950
- Net return: $6,950 − $5,000 = $1,950
- ROI: ($1,950 ÷ $5,000) × 100 = 39%
Example 2: Rental Property
You purchase a rental property with a $60,000 down payment and $5,000 in closing costs — total cash invested: $65,000.
Annual income and expenses:
-
Gross rent: $18,000/year
-
Expenses (taxes, insurance, maintenance, vacancy): $11,000/year
-
Net income: $7,000/year
-
ROI: ($7,000 ÷ $65,000) × 100 = 10.8% per year
This is called the cash-on-cash return — it only counts the cash you actually put in, not the full property value.
Example 3: Negative ROI
You invest $20,000 in a business. It fails and you recover $8,000.
- Net return: $8,000 − $20,000 = −$12,000
- ROI: (−$12,000 ÷ $20,000) × 100 = −60%
ROI can and does go negative. Always factor in the risk of loss when evaluating any investment.
Annualized ROI: Comparing Investments Across Different Time Periods
Basic ROI does not account for time. A 50% return sounds great — but is it over 2 years or 20 years? Annualized ROI (also called CAGR — Compound Annual Growth Rate) converts any return into a per-year rate.
Annualized ROI = [(1 + ROI/100)^(1/n) − 1] × 100
Where n = number of years held
| Total ROI | Time Held | Annualized ROI |
|---|---|---|
| 10% | 1 year | 10.0% |
| 21% | 2 years | 10.0% |
| 33% | 3 years | 10.0% |
| 50% | 4 years | 10.7% |
| 100% | 7 years | 10.4% |
| 200% | 12 years | 9.6% |
| 35% | 3 years | 10.5% |
| 35% | 5 years | 6.2% |
Why this matters: If someone tells you they made 200% on an investment, ask how long it took. 200% over 12 years is about 9.6% per year — roughly matching a diversified stock index. 200% over 3 years is extraordinary (41.4% per year).
Typical ROI Benchmarks by Asset Class (2026)
| Asset Class | Typical Annual ROI | Notes |
|---|---|---|
| S&P 500 index (historical avg.) | ~10% nominal | Before inflation and taxes; ~7% real |
| US Treasury 10-year bond | ~4.5–5.0% | Current 2026 yield |
| High-yield savings account / CD | 4.0–5.0% | FDIC-insured, no loss risk |
| Real estate (appreciation only) | 3–5% | National average; location-dependent |
| Real estate (cash-on-cash, rental) | 5–12% | Depends heavily on market and leverage |
| Corporate bonds (investment grade) | 5–6% | 2026 yields |
| Small business | 10–20%+ | Highly variable; most fail |
| Home improvement — kitchen remodel | 60–70% at resale | Varies by market |
| Home improvement — bathroom remodel | 55–65% at resale | Varies by market |
See our home improvement ROI guide for a detailed breakdown of which renovation projects pay off best.
What ROI Does Not Tell You
ROI is powerful but incomplete. Three important limitations:
1. It ignores time. A 30% ROI over 10 years is very different from 30% in one year. Always annualize when comparing across different holding periods.
2. It ignores risk. Two investments with identical ROI may carry very different odds of loss. A 15% ROI on a Treasury bond is virtually guaranteed; 15% on a startup is not.
3. It ignores taxes and inflation. A 10% gross ROI in a year with 4% inflation equals roughly 5.8% in real purchasing power terms. After federal capital gains tax, your after-tax real return may be 4–5%.
More complete metric: Net Present Value (NPV) accounts for the time value of money and is used by businesses for major capital decisions. For personal investing, comparing annualized after-tax ROI to a benchmark (like the S&P 500) is a practical alternative.
ROI vs. Other Common Investment Metrics
| Metric | Measures | Best Used For |
|---|---|---|
| ROI | Total profit as % of cost | Quick comparison of any investment |
| CAGR / Annualized ROI | Per-year compound return | Comparing investments across different time periods |
| Dividend Yield | Annual dividends as % of price | Income-generating stocks |
| Cap Rate | Net operating income ÷ property value | Commercial real estate |
| IRR (Internal Rate of Return) | Annualized return including timing of cash flows | Complex multi-period investments |
| Sharpe Ratio | Return per unit of risk | Comparing risk-adjusted performance |
How to Improve Your ROI
For most investors, the highest-leverage improvements are:
- Reduce costs — investment fees compound over time. A 1% annual fee difference over 30 years on $100,000 costs roughly $94,000 in foregone returns.
- Increase holding period — compounding requires time. Annualized returns improve the longer you stay invested.
- Reinvest dividends — automatically reinvesting dividends boosts compounding significantly; dividend reinvestment accounts for roughly 40% of total stock market returns historically.
- Tax optimization — hold investments in tax-advantaged accounts (401k, IRA, Roth) where possible to shield returns from capital gains and income tax.
Key Takeaways
- ROI = (Net Return ÷ Cost) × 100 — the most universal investment metric
- Always annualize ROI to compare investments held for different time periods
- The S&P 500 has returned approximately 10% per year historically; that is a useful benchmark
- ROI ignores taxes, inflation, and risk — always apply those filters before making decisions
- For compound interest projections, see the compound interest calculator
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