Home›Finance›Investment ROI

Investment ROI

Return on investment calculator

The Investment ROI Calculator takes a starting value, an ending value, and a holding period, and returns both the total return and the annualized return (also known as CAGR — compound annual growth rate).

Total return alone is misleading without context: a 50% gain is excellent if it took two years and mediocre if it took twenty. Annualizing the return makes investments with different holding periods directly comparable.

What it calculates

  • Total dollar gain or loss.
  • Total percentage return.
  • Annualized return (CAGR).

The formulas

  • Total return: (End − Start) / Start × 100
  • CAGR: ((End / Start)^(1 / years) − 1) × 100

CAGR is the constant annual rate that would have produced the same ending value, smoothing out the year-to-year volatility.

Worked example

Bought a stock for $5,000, sold it 4 years later for $7,500:

  • Total return = (7,500 − 5,000) / 5,000 = 50%
  • CAGR = (7,500 / 5,000)^(1/4) − 1 = 10.67% per year

Compare to a different investment that returned 25% in 1 year: that one has a much higher annualized return (25%) even though the total gain in dollars might be smaller.

When to use this

Evaluating past investments, comparing two opportunities side by side, and understanding whether a real estate or business venture actually outperformed a comparable stock-market benchmark over the same period.

What this does not account for

  • Fees and taxes — both meaningfully reduce real returns.
  • Inflation — to get real (inflation-adjusted) return, subtract the average inflation rate over the period from CAGR.
  • Dividends or income — if not reinvested, they should be included in the "end value" for a fair comparison.
  • Cashflow timing — for investments with deposits and withdrawals over time, internal rate of return (IRR) is more accurate than CAGR.

Frequently asked questions

Is CAGR the same as average return?

No. The arithmetic average of yearly returns ignores compounding and is usually higher than CAGR. CAGR is what you actually earned, on average, each year.

How do I compare returns of different lengths?

Annualize them. A 60% return over 3 years is 16.96% per year. A 25% return over 1 year is 25% per year. CAGR makes the comparison meaningful.

Should I use nominal or real return?

For comparing investments, nominal is fine. For deciding whether you actually grew your purchasing power, subtract inflation.

Related tools