Investment Return Calculator Guide: ROI guide, CAGR guide & Annualized Returns Explained
ROI tells you what you made. CAGR tells you at what annual rate you made it. Annualized return tells you what the experience was like across time. Learn when to use each, how to calculate them, and how to avoid the return metrics that make bad investments look good.
Return on Investment (ROI): The Simple Total Return
ROI is the most basic investment return metric: the percentage gain or loss on an investment relative to its initial cost. It answers 'how much did I make (or lose) as a percentage of what I put in?' without any reference to how long the investment was held. ROI = (Net Profit ÷ Initial Investment) × 100 = (Final Value − Initial Investment) ÷ Initia
CAGR: The Standard for Annualized Investment Performance
CAGR is the rate at which an investment would have grown if it grew at a steady annual rate, producing the same final value. It's the geometric average annual return — the correct way to express the annual rate of an investment that experienced uneven year-to-year growth. CAGR = (Final Value ÷ Initial Value)^(1 ÷ Years) − 1 Example: $25,000 portfol
Time-Weighted vs. Money-Weighted Returns
When you're making regular contributions to a portfolio — which most investors do — simple CAGR on beginning and ending balances produces a misleading figure because the timing of contributions significantly affects the outcome. Time-weighted return (TWR) measures the performance of the investment strategy, independent of the investor's contributio
Total Return: Why Dividends Must Be Included
Price return and total return are two dramatically different figures for the same investment, and conflating them leads to severe underestimation of long-term performance — particularly for dividend-paying assets. Price return measures only the change in the investment's market price. Total return includes price change plus all distributions (divid
Frequently Asked Questions
What is a good return on investment?
Context determines what constitutes 'good.' The S&P 500 has historically produced approximately 10% nominal annual return (7% real). A diversified portfolio matching this benchmark is performing in line with the broad market. Returns above the market (alpha) should be evaluated f
What is CAGR and how is it calculated?
CAGR (Compound Annual Growth Rate) is the annual rate at which an investment would need to grow to get from its initial value to its final value over a specified period. Formula: CAGR = (Final Value ÷ Initial Value)^(1 ÷ Years) − 1. Example: $8,000 growing to $15,000 in 6 years.
How do I calculate the return on my investment portfolio?
For a single investment with no contributions: CAGR = (Final Value ÷ Initial Value)^(1/Years) − 1. For a portfolio with regular contributions, use your brokerage's 'personal rate of return' or money-weighted return calculation, which accounts for contribution timing. The Modified
What is the difference between ROI and CAGR?
ROI is the total return over any period — it doesn't account for time. A 100% ROI over 2 years and a 100% ROI over 20 years are both '100% ROI.' CAGR expresses returns as an equivalent annual rate that accounts for time and compounding. The 2-year 100% ROI = 41.4% CAGR. The 20-ye
What annual return does the stock market average?
The S&P 500 total return (including reinvested dividends) has averaged approximately 10.2%–10.5% nominal annually over the 50-year period ending 2024. Real (inflation-adjusted) CAGR is approximately 6.5%–7.2%. Returns vary significantly by measurement period — the 10 years ending
Do I need to include dividends in ROI calculation?
Yes — for accurate total return calculation, dividends must be included, assumed to be reinvested at market price. For long-term equity holdings, dividends often represent 30%–50% of total return. A stock that appreciated 80% over 10 years while paying a 3% annual dividend had ap