What counts as a good ROI on an investment?

It depends entirely on the holding period and the risk taken. A 20% total ROI over one year is strong for a diversified portfolio but unremarkable for a single early-stage business bet; the annualised figure this calculator produces is what actually makes returns of different lengths comparable.

How do you calculate ROI by hand?

Subtract the amount invested from the amount returned to get profit, then divide profit by the amount invested and multiply by 100. On 25,000 invested and 41,000 returned, profit is 16,000 and ROI is 64%.

What is the difference between ROI and annualised return?

Total ROI is the cumulative gain over the whole holding period with no regard for how long it took. Annualised return converts that same gain into a constant yearly compounding rate, calculated by taking the nth root of the money multiple and subtracting one, where n is the number of years held.

Does ROI account for taxes and fees?

Not unless you build them in yourself. Enter the amount you actually invested after fees, and the amount you actually received after any transaction costs and taxes, or the figure will overstate what you kept.

Why is my annualised return higher than my total ROI?

That happens whenever the holding period is under one year. A 36% total ROI earned in six months annualises to well over 36% because the calculation projects that same six-month pace forward across a full year.

Yes, whenever the amount returned is less than the amount invested. Losing 1,000 of a 10,000 investment over five years gives a total ROI of negative 10% and an annualised return of roughly negative 2.1% a year.

Investment return (ROI) calculator

Return on investment is profit expressed as a share of what you put in: the money returned minus the money invested, divided by the money invested. On its own it says nothing about time, so this calculator also converts the total figure into an annualised rate, which is the only version that lets you compare a two-year flip against a ten-year hold on equal terms.

Reading total ROI against annualised return

A total ROI of 60% sounds identical whether it took eight months or twenty years, but the annualised figure exposes the difference immediately. Turning 15,000 into 24,000 over four years is a 60% total return, yet the compounding rate behind it is only about 12.5% a year, because each year's gain has to build on the one before it.

As a rough benchmark, a diversified US stock index has historically compounded in the high single digits to low double digits annually over long stretches, though any single year can swing far outside that range. A private business or a renovated property can post far higher annualised returns, but usually carries proportionally more risk of a loss year offsetting the average.

When a return looks unusually high, check the holding period before the headline number. A 20% total ROI booked in three months annualises to well over 100%, which is the kind of result that should prompt a second look at whether the comparison is fair or the timing was simply lucky.

Three scenarios with different numbers

Invest 15,000 and sell for 24,000 after 4 years: profit is 9,000, total ROI is 60%, and the annualised return works out to roughly 12.5%, since 1.6 raised to the power of one-quarter is about 1.125.

Invest 50,000 and cash out at 68,000 after 2 years: profit is 18,000, total ROI is 36%, but because it happened in half the time the annualised return is actually higher, at roughly 16.6% — the square root of 1.36.

Invest 10,000 and only get back 9,000 after 5 years: profit is negative 1,000, total ROI is negative 10%, and the annualised figure is a much gentler negative 2.1% a year, because a single loss spread across five years erodes the balance more slowly than the headline percentage implies.

What the number leaves out

This formula treats the investment as one lump sum in and one lump sum out. It cannot handle a deal where you added more capital partway through, or where the business threw off cash along the way — both cases need an internal rate of return calculation instead, because a plain ROI figure would either overstate or understate the true annualised gain.

It is also a nominal figure. A 12.5% annualised return during a stretch when prices rose 4% a year is worth closer to 8% in purchasing-power terms, and the gap matters more the longer the holding period runs.

Fees, commissions and any tax paid along the way belong inside the 'amount invested' and 'amount returned' fields, not bolted on afterward. Leaving a 2% annual management fee out of the calculation routinely overstates a decade-long return by more than 20 percentage points of total ROI.

Tax timing and jurisdiction notes

In the United States, an asset held for more than one year before it is sold qualifies for long-term capital gains rates, which are lower than ordinary income tax rates; sell one day short of that mark and the entire gain is taxed as short-term instead. That distinction can change your after-tax ROI by several percentage points even when the pre-tax numbers are identical.

Outside the US, treatment varies widely: the UK applies an annual capital gains tax allowance and different rates for shares versus property, while many EU countries tax investment gains as part of general income with country-specific exemptions. None of that is built into this calculator, so treat its output as pre-tax unless you have already netted tax out of the returned amount.

Currency matters too. If the investment and the payout happened in different currencies, convert both to the same currency at the exchange rates that actually applied on those dates before entering them, rather than at today's rate.

Frequently asked questions

What counts as a good ROI on an investment?: It depends entirely on the holding period and the risk taken. A 20% total ROI over one year is strong for a diversified portfolio but unremarkable for a single early-stage business bet; the annualised figure this calculator produces is what actually makes returns of different lengths comparable.
How do you calculate ROI by hand?: Subtract the amount invested from the amount returned to get profit, then divide profit by the amount invested and multiply by 100. On 25,000 invested and 41,000 returned, profit is 16,000 and ROI is 64%.
What is the difference between ROI and annualised return?: Total ROI is the cumulative gain over the whole holding period with no regard for how long it took. Annualised return converts that same gain into a constant yearly compounding rate, calculated by taking the nth root of the money multiple and subtracting one, where n is the number of years held.
Does ROI account for taxes and fees?: Not unless you build them in yourself. Enter the amount you actually invested after fees, and the amount you actually received after any transaction costs and taxes, or the figure will overstate what you kept.
Why is my annualised return higher than my total ROI?: That happens whenever the holding period is under one year. A 36% total ROI earned in six months annualises to well over 36% because the calculation projects that same six-month pace forward across a full year.
Can ROI be negative?: Yes, whenever the amount returned is less than the amount invested. Losing 1,000 of a 10,000 investment over five years gives a total ROI of negative 10% and an annualised return of roughly negative 2.1% a year.

Sources

IRS Topic no. 409, Capital gains and losses — Confirms the one-year threshold separating short-term from long-term capital gains treatment in the US (page current as of the 2025 filing guidance).
SEC Investor.gov Compound Interest Calculator — Official SEC investor-education tool illustrating how compounding turns a periodic rate into growth over multiple years.