ROI
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Put money in, got money out — what was the return? ROI turns any investment into a clean percentage, and with a holding period it becomes an annualized rate you can compare against anything else.
Return on investment, properly
ROI is profit relative to what you paid: the gain divided by the cost, as a percentage. It works for anything — shares, property, a business project, a course — which is exactly its strength and its trap.
Worked example
Over 3 years, annualized: 1.5^(1/3) − 1 ≈ +14.5%/yr
The trap: ROI ignores time
A 50% ROI is superb in one year and mediocre over fifteen. Always pair ROI with the holding period — the annualized figure (which is just CAGR) is the number that lets you compare a property flip with an index fund. And remember to count all costs: fees, taxes and your own time all belong in "invested".
ROI FAQ
Subtract the amount invested from the final value, divide by the amount invested, and multiply by 100. Turning $5,000 into $7,500 is a 50% ROI.
It depends entirely on the timeframe and risk. As a reference point, the US stock market has averaged about 10% a year long-run — so judge any ROI against its holding period, annualized, not as a raw total.
ROI is the total return over the whole period; CAGR spreads it into an equivalent yearly compound rate. A 50% ROI over 3 years is about 14.5% CAGR.
Yes — the honest 'invested' figure includes purchase costs, fees, taxes and improvements. Leaving them out inflates the ROI.