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MasterMath

ROI Calculator

Turning 1,000 into 1,500 is a 50% ROI, but spread over ten years that is only 4.14% a year. Work out both, because the second one is what lets you compare.

Currency and number format for

Total ROI

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Total ROI—
Annualised return—
Absolute profit—
Your money multiplied by—

How this was worked out

    The formula

    ROI = (final value − investment) ÷ investment × 100

    Where it comes from

    ROI tells you what proportion of your money you got back on top of what you put in. On its own it says nothing about time, and time is what makes returns comparable: 35% in three years and 35% in three months are wildly different investments.

    How to work it out by hand

    1. Subtract the investment from the final value to get the profit
    2. Divide that profit by the amount invested
    3. Multiply by 100 to get a percentage
    4. To annualise it, take the nth root where n is the number of years

    What is worth knowing

    The mistake that flatters a portfolio most is dividing total ROI by the number of years. A 50% return over ten years is not 5% a year: it is 4.14%, because each year compounds on the previous one. The gap widens fast over longer periods and higher returns. Two other things this figure ignores: it takes no account of inflation, so a 5% return in a year with 6% inflation is a real loss, and it says nothing about the risk taken to get there, which is what the Sharpe ratio is for.

    Frequently asked questions

    What is a good ROI?

    It depends entirely on the risk and the time. A diversified stock portfolio has historically returned around 7% a year before inflation; anything promising much more is compensating for something.

    Why annualise it?

    Because it is the only way to compare investments held for different lengths of time. Total ROI alone tells you nothing about how long your money was tied up.

    Why not just divide by the years?

    Because returns compound. Dividing gives a number that is always too high, and the error grows with the number of years.

    Does it account for inflation?

    No. This is a nominal return. If prices rose faster than your investment, you lost purchasing power despite a positive ROI.