ROI formulas
ROI = (returned − invested) ÷ invested × 100
Annualized ROI = ((returned ÷ invested)1 ÷ years − 1) × 100
Worked example
You invest $1,000 and it grows to $2,000 over 5 years.
- Gain: $1,000
- ROI: 1,000 ÷ 1,000 × 100 = 100%
- Annualized ROI: (2)1/5 − 1 ≈ 14.87% per year
Notice that the yearly figure is not simply 100% ÷ 5 = 20%, because returns compound.
Using ROI well
- Compare like with like. Use annualized ROI when holding periods differ.
- Count every cost and every income. Fees, taxes, repairs, dividends and rent all change the real return.
- Consider risk. A high ROI may come with a much higher chance of loss.
- Think about the alternative. Compare your ROI with what the money could earn safely, such as in a CD or high-yield savings account.
Last reviewed October 2026.
Frequently asked questions
What is ROI?
Return on investment (ROI) measures how much you gained or lost compared with what you put in, as a percentage. An ROI of 25% means you got back your money plus a quarter more.
Why do I need annualized ROI?
Plain ROI ignores time. Doubling your money in 2 years is far better than doubling it in 20. Annualized ROI, also called the compound annual growth rate, converts the result into an average yearly return so you can compare investments held for different lengths of time.
Should I include costs and fees?
Yes. Add purchase fees, commissions, repairs or other costs to the amount invested, and subtract selling costs from the amount returned. Otherwise the ROI will look better than it really was.
Can ROI be negative?
Yes. If you get back less than you invested, the ROI is negative. Investing $1,000 and getting back $800 is an ROI of −20%.
Does ROI include dividends or rent?
It should. Add any income you received along the way, such as dividends, interest or net rent, to the amount returned.