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- Net gain
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- Total ROI
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- Annualized ROI
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- Multiple on invested capital
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- Years to double at this rate
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Annualized ROI by final value and holding period
| Final value \ Years | -20% | -10% | Base | +10% | +20% |
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Total ROI by investment and fees
| Investment \ Fees | -20% | -10% | Base | +10% | +20% |
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Formulas and worked example
- Net gain = Final value + Income - Fees - Initial investment
- ROI = Net gain / Initial investment
- Annualized ROI = (1 + ROI)1/years - 1
An investor puts in $50,000 and later holds $68,000, after receiving $2,500 of income and paying $1,500 of fees, over 3 years. Net gain is $19,000, so ROI is 38%. Annualized ROI is 1.381/3 - 1, or 11.33% per year.
Self-check quiz
1. ROI is net gain divided by:
2. Higher fees, all else equal, will:
3. A 50% total return over 5 years is closest to which annual rate?
Frequently asked questions
How do you calculate return on investment?
ROI equals net gain divided by the initial investment. Net gain is the final value plus any income received, minus fees and the original amount invested.
What is annualized ROI and why does it matter?
Annualized ROI converts a total return into the equivalent yearly compound rate, so investments held for different lengths of time can be compared fairly.
How do fees change ROI?
Fees reduce net gain dollar for dollar, so they cut ROI by the fee amount divided by the investment, and the drag compounds in annualized terms over longer holding periods.
What is a good ROI?
It depends on risk and time. Compare annualized ROI against the return of a safe alternative such as treasury bills or the cost of capital for the same period.