How to Calculate Investment Return (ROI, CAGR & Total Return)
Whether you're evaluating a stock, mutual fund, or real estate investment, knowing how to calculate return properly is essential. Here are the three formulas every investor needs.
To calculate ROI: (Final Value - Initial Investment) ÷ Initial Investment × 100. To calculate CAGR (Compound Annual Growth Rate): (Final Value ÷ Initial Value) ^ (1 ÷ Years) - 1. CAGR is more useful than simple ROI for comparing investments held over different time periods.
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The Three Investment Return Formulas
1. Simple ROI
ROI = (Final Value − Initial Investment) ÷ Initial Investment × 100
Example: You invest $10,000 and it grows to $14,500 after 5 years. ROI = ($14,500 − $10,000) ÷ $10,000 × 100 = 45%
2. CAGR (Compound Annual Growth Rate)
CAGR = (Final Value ÷ Initial Value) ^ (1 ÷ Years) − 1
Example: Same investment. CAGR = ($14,500 ÷ $10,000) ^ (1 ÷ 5) − 1 = 7.72% per year
CAGR is usually more useful than ROI because it's annualized — it lets you compare investments held for different time periods on equal footing.
3. Total Return (with dividends or contributions)
Total return includes reinvested dividends and periodic contributions — this is what most portfolio trackers show. Use our investment calculator to model different contribution scenarios.
Historical Market Returns
The S&P 500 has returned approximately 10% annually before inflation, or about 7% after inflation, averaged over decades. Single years vary wildly — this average only emerges over 10+ year periods.
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