ROI Calculator
Total return, annualized return (CAGR), and like-for-like comparison across investments.
Total ROI vs Annualized Return (CAGR)
Two distinct ways to express investment performance:
Total ROI = (Final − Initial − Costs) / Initial
CAGR = (Final / Initial)(1/years) − 1
The annualized rate (CAGR) is the right comparison for investments held for different lengths of time. A 50% total return over 2 years (~22.5% CAGR) is far better than a 50% total return over 10 years (~4.1% CAGR), even though the headline number looks identical. Wikipedia's CAGR page covers the math foundation.
Two real-world investment outcomes
Investor A bought Apple in 2014 for $20,000. By 2024 it was worth $130,000. Investor B bought Procter & Gamble in 2014 for $20,000. By 2024 it was worth $35,000.
| Investor | Initial | Final | Total ROI | CAGR |
|---|---|---|---|---|
| A — Apple (10y) | $20,000 | $130,000 | 550% | 20.6% |
| B — P&G (10y) | $20,000 | $35,000 | 75% | 5.8% |
| S&P 500 (10y, reference) | — | — | ~233% | 12.8% |
Investor A crushed it. Investor B underperformed the broad market — even though their total return looks fine in isolation. CAGR exposes the truth that total-return numbers hide: time matters.
Real ROI Is Net of Everything
The number that ends up in your bank account is reduced by:
- Trading commissions — mostly zero at modern brokers (Schwab, Fidelity, Robinhood); still applies at some legacy platforms.
- Expense ratios — 0.03% for an S&P 500 ETF (VOO), but 0.5-2% for actively managed funds.
- Advisor fees — typically 0.5-1.5% AUM ("assets under management") annually for traditional advisors.
- Bid-ask spreads — invisible cost on low-volume securities.
- Capital gains taxes — 0%, 15%, or 20% federal long-term in the U.S., plus state. Short-term (held under a year) is taxed at ordinary income rates — up to 37%.
A "10% gross return" can easily become 6-7% net in a taxable account with active management. Index funds + tax-advantaged accounts close most of the gap.
Reference Returns by Asset Class
Long-run historical CAGR (nominal, before inflation), per data from Investopedia and officialdata.org:
| Asset Class | Long-run CAGR | Notes |
|---|---|---|
| S&P 500 (1926-2023) | ~10% | With dividends reinvested |
| US 10-year Treasury | ~5% | Before inflation |
| Gold (long-run) | ~5-7% | Very volatile, weak inflation hedge |
| US residential real estate | ~3-4% | Just home value; rental ROI is higher |
| Bitcoin (2014-2024) | ~50% | Wildly volatile, atypical sample period |
| "Magnificent 7" stocks (recent) | ~30% | Recent run, not extrapolatable |
Common ROI Mistakes
- Comparing total returns across different holding periods. Always convert to CAGR.
- Ignoring inflation. A 6% nominal return at 3% inflation = only 3% real growth.
- Cherry-picking start/end dates. Backtesting that starts at a market low and ends at a peak makes any strategy look great.
- Confusing IRR with CAGR. IRR (Internal Rate of Return) handles cash flows in and out at different times; CAGR is for a single start and end.
- Forgetting taxes when comparing taxable vs tax-advantaged accounts.
Frequently Asked Questions
Does ROI account for inflation?
No — the standard formula uses nominal dollars. To get the real (inflation-adjusted) return, subtract your assumed inflation rate from CAGR. A 7% CAGR at 3% inflation = ~4% real annual growth.
How is CAGR different from average return?
CAGR is the compounded rate that exactly gets you from start to end value. Average return is the arithmetic mean of yearly returns. CAGR is always ≤ average — the gap grows with volatility. A portfolio that returns +50%, then −33% has an average of +8.5% but a CAGR of 0%.
What's a good ROI?
Context-dependent. Beating the S&P 500's long-run ~10% CAGR with reasonable risk is a strong outcome. Below the risk-free rate (~5% US Treasury) is bad — you should have just bought treasuries.
How do I calculate ROI on a rental property?
Cap rate (annual net operating income / property value) for the property itself; cash-on-cash return (annual cash flow / down payment) for your actual money; total return adds appreciation and principal paydown. All three matter for a complete picture.