ROI Formula
Net Profit = Final Value − Initial Investment
Annualized ROI = (1 + ROI/100)^(1/years) − 1
Example Calculations
| Investment | Cost | Return | ROI |
|---|---|---|---|
| Stock purchase | $10,000 | $13,500 | 35% |
| Real estate | $200,000 | $280,000 | 40% |
| Business equipment | $5,000 | $4,200 | −16% (loss) |
| Marketing campaign | $2,000 | $8,500 | 325% |
ROI Benchmarks
| Investment Type | Historical Average ROI |
|---|---|
| S&P 500 (US stocks) | ~10% per year nominal (~7% real) |
| US real estate | ~8–12% per year (including rental income) |
| Bonds (US Treasury) | ~2–5% per year |
| High-yield savings | ~4–5% APY (2024–2026) |
| Small business | ~15–30% (highly variable) |
| Venture capital | Target 20–30%+ (most investments fail) |
Frequently Asked Questions
What is a good ROI?
It depends on the investment type and timeframe. The S&P 500 historical average (~10%/year) is a common benchmark. For business investments, many analysts consider 15–20%+ a good ROI. For real estate, 8–12% is typical. Always compare ROI against alternative uses of the same capital and adjust for risk and inflation.
What is the difference between ROI and annualized ROI?
Simple ROI is the total percentage gain over the entire holding period. Annualized ROI (CAGR — Compound Annual Growth Rate) converts this to a per-year rate, enabling fair comparison across different time horizons. A 50% ROI over 4 years annualizes to about 10.67% per year.
Does ROI include inflation?
Standard ROI uses nominal (face-value) numbers and does not account for inflation. To find real ROI, subtract the inflation rate: Real ROI ≈ Nominal ROI − Inflation Rate. At 3% annual inflation, a 10% nominal return is only about 7% in real purchasing power terms.
What costs should I include in the investment amount?
Include all costs: purchase price, transaction fees (brokerage commissions, closing costs), maintenance, taxes paid, and any other out-of-pocket costs. For real estate, include mortgage interest paid, property taxes, insurance, and repairs. Including all costs gives a more accurate true ROI.