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How to use this calculator#
- Enter the full amount you put inInclude commissions, platform fees, stamp duty or transfer tax and any capital you added later. If a $10,000 purchase carried $120 of dealing costs, the initial cost is $10,120 — otherwise the return is flattered from the first keystroke.
- Enter the value today including income receivedDividends, coupons, rent and distributions are part of the return. Leave them out and an income-producing asset looks worse than a growth one for no reason other than accounting.
- Enter the holding period in yearsDecimals are fine: 18 months is 1.5. This field is what converts a headline percentage into something you can compare against an index, a savings account or another deal.
- Judge the CAGR, not the ROITotal ROI only compares like-for-like when two investments ran for exactly the same length of time. Everywhere else, the annualised figure is the honest one.
The formula#
Return on investment and compound annual growth rate
ROI = (V − C) ÷ C × 100 CAGR = [ (V ÷ C)^(1 ÷ t) − 1 ] × 100
- V
- Final value, including all income received
- C
- Initial cost, including all fees and taxes paid to acquire
- t
- Holding period in years
- ROI
- Total percentage gain across the whole period
- CAGR
- The smoothed annual rate that would produce the same result
CAGR is undefined if the final value is zero or negative, or the period is zero — a total loss is simply −100% ROI. CAGR also assumes a single lump sum in and a single amount out; if you added money along the way, use a money-weighted return (IRR) instead, because CAGR will overstate your result.
Total ROI versus annualised return#
ROI is simply (final value minus initial cost) divided by initial cost, expressed as a percentage. Turn 10,000 into 16,000 and your ROI is 60%. But 60% over one year and 60% over eight are wildly different outcomes, which is why the annualised figure matters: CAGR = (final / initial)^(1/years) - 1, giving 60% for the one-year case and only 6.05% a year over eight.
Use total ROI to compare completed projects of identical length, and CAGR for everything else. A rental property returning 90% across twelve years works out at 5.5% a year, quietly underperforming an index fund that returned 40% over four years at 8.8% annually — despite the far more impressive headline number.
The costs people leave out#
Honest ROI counts every outflow. For shares that means commissions, bid-ask spreads, platform fees and tax on dividends. For property it means stamp duty or transfer tax, legal fees, agent commission on the sale, insurance, maintenance and every vacant month. Add these to the initial cost and net them out of the final value, or the number flatters the investment badly.
What actually counts as a good return#
Judge any return against the alternative you could realistically have taken. If a broad stock index compounded at 9% a year over your holding period, a venture returning 6% destroyed value relative to doing nothing at all. Then adjust for risk and liquidity — a business that locks up your capital and could fail outright needs a materially higher return than a government bond to justify itself.
Worked examples#
$10,000 into $16,000 over four years
A fund position bought once and sold four years later, dividends reinvested.
- Profit = 16,000 − 10,000 = 6,000
- ROI = 6,000 ÷ 10,000 × 100 = 60.00%
- Money multiple = 16,000 ÷ 10,000 = 1.60×
- CAGR = (1.60)^(1 ÷ 4) − 1 = 1.124683 − 1 = 0.124683
- CAGR = 12.47%
A 60% total return, which is 12.47% a year compounded — a genuinely strong four years.
The same 60%, spread over ten years
A second holding that also gained 60%, but took a decade to do it.
- $25,000 grows to $40,000: ROI = 15,000 ÷ 25,000 = 60.00%
- CAGR = (1.60)^(1 ÷ 10) − 1 = 1.048122 − 1
- CAGR = 4.81% a year
- A broad index compounding at 8% over the same decade would have turned 25,000 into 53,973
Identical headline ROI, less than half the annual rate, and $13,973 behind simply holding the index. The holding period is not a footnote — it is most of the answer.
Reference tables#
| Total ROI | 1 year | 3 years | 5 years | 10 years | 20 years |
|---|---|---|---|---|---|
| 25% | 25.00% | 7.72% | 4.56% | 2.26% | 1.12% |
| 50% | 50.00% | 14.47% | 8.45% | 4.14% | 2.05% |
| 100% | 100.00% | 25.99% | 14.87% | 7.18% | 3.53% |
| 200% | 200.00% | 44.22% | 24.57% | 11.61% | 5.65% |
| 300% | 300.00% | 58.74% | 31.95% | 14.87% | 7.18% |
| 500% | 500.00% | 81.71% | 43.10% | 19.62% | 9.37% |
Doubling your money over twenty years sounds impressive and is 3.53% a year — below the long-run return of almost every diversified portfolio.
| CAGR | 5 years | 10 years | 20 years | 30 years |
|---|---|---|---|---|
| 3% | $11,593 | $13,439 | $18,061 | $24,273 |
| 5% | $12,763 | $16,289 | $26,533 | $43,219 |
| 7% | $14,026 | $19,672 | $38,697 | $76,123 |
| 9% | $15,386 | $23,674 | $56,044 | $132,677 |
| 12% | $17,623 | $31,058 | $96,463 | $299,599 |
| 15% | $20,114 | $40,456 | $163,665 | $662,118 |
Use this as your benchmark column: if the deal in front of you cannot beat the 7% row, the index fund wins.
| CAGR | Double (2×) | Triple (3×) | Tenfold (10×) |
|---|---|---|---|
| 3% | 23.4 years | 37.2 years | 77.9 years |
| 5% | 14.2 years | 22.5 years | 47.2 years |
| 7% | 10.2 years | 16.2 years | 34.0 years |
| 9% | 8.0 years | 12.7 years | 26.7 years |
| 12% | 6.1 years | 9.7 years | 20.3 years |
| 15% | 5.0 years | 7.9 years | 16.5 years |
The rule of 72 approximates the doubling column well between 6% and 10% and drifts noticeably outside it.
Common mistakes#
- Leaving acquisition and exit costs out of the calculationA property bought for $250,000 and sold for $475,000 twelve years later looks like a 90% return, or 5.49% a year. Add $12,000 of purchase costs and $14,000 of agent and legal fees on exit and it is 75.95%, or 4.82% a year — two thirds of a percentage point of annual return, deleted by paperwork nobody counted.
- Comparing a total ROI against an annual benchmarkSetting a 40% total return next to 'the market returns about 9% a year' and concluding you won is a unit error. Convert to CAGR first — 40% over four years is 8.78% a year, which is a draw, not a victory.
- Using CAGR when money went in over timeCAGR assumes one deposit and one withdrawal. If you drip-fed contributions, most of the money was invested for less than the full period, and CAGR will overstate your performance — sometimes by several percentage points. Use IRR or a money-weighted return instead.
- Ignoring risk and liquidity when ranking returnsA 12% return from an illiquid private deal that could go to zero is not obviously better than 9% from a diversified fund you can sell on Tuesday. Return per unit of risk taken is the comparison, and the raw percentage never shows it.
Frequently asked questions#
What is the difference between ROI and CAGR?
ROI is the total percentage gain across the whole holding period. CAGR converts that into a smoothed annual rate so investments held for different lengths of time become comparable.
Can ROI be negative?
Yes. If the final value falls below the initial cost, both ROI and the annualised return are negative. A total wipeout is -100%.
Should I include dividends or rent received?
Yes. Add income collected during the holding period to the final value, otherwise you badly understate the return on income-producing assets.
Key terms#
- ROI (return on investment)
- Total profit as a percentage of what you put in, across the whole holding period regardless of length.
- CAGR
- The constant annual rate that would take the initial cost to the final value over the holding period. The standard way to compare investments of different durations.
- Money multiple
- Final value divided by initial cost, expressed as 1.6× or 2.4×. Common in private equity, where it sits alongside IRR rather than replacing it.
- IRR (internal rate of return)
- The discount rate that makes the net present value of all cash flows zero. Handles deposits and withdrawals at different times, which CAGR cannot.
- Total return
- Capital growth plus income — dividends, coupons or rent. Quoting price growth alone understates equity and property returns substantially.
- Real return
- Return after inflation. A 6% CAGR in a period of 4% inflation is a real return of roughly 2%, which is what actually changed your buying power.
Sources#
- Compound interest and rate of return basics for investors — U.S. Securities and Exchange Commission (Investor.gov)
- Mutual fund fees and expenses — how costs reduce returns — U.S. Securities and Exchange Commission
- Topic no. 409, Capital gains and losses — Internal Revenue Service
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