Investment Return (ROI) Calculator
Work out what an investment really returned, including regular contributions: money-weighted annual return, total return and net profit.
Written by Rahman · Last reviewed
Quick answer
Paying in 10,000 up front plus 250 a month for six years and ending with 32,000 is a 14.3% total return, but only 3.26% a year once you account for when the money actually arrived. Total return is (final − money in) ÷ money in. With a single lump sum the annualised figure is CAGR; once there are regular contributions the money-weighted return is the honest one, because cash paid in late has had less time to work.
The money-weighted return accounts for when each contribution went in, treating them as paid at the start of each month. Money added last year has had less time to compound, so comparing the opening and closing balances alone would flatter the result — that comparison is shown separately for reference. Figures carry whatever currency you enter and exclude tax, fees and withdrawals.
Results are estimates for general guidance and are not financial, tax or legal advice. Except where a calculator names a currency, figures carry no currency of their own: put in pounds and you get pounds back, put in rupees and you get rupees. Figures depend on the assumptions you enter and on rates that change over time. Check current rates and speak to a qualified adviser before acting on them.
About the Investment Return (ROI) Calculator
Return on investment (ROI) measures how much an investment has gained or lost relative to what you put into it. Total return states the overall percentage change; the annualised figure expresses that as a yearly rate you can compare against anything else.
Which annualised figure is correct depends on the investment. For a lump sum left alone, the compound annual growth rate (CAGR) answers it: what steady annual rate would have produced this result? For a portfolio you keep paying into, CAGR is the wrong tool: it compares only the opening and closing balances, so it credits recent contributions with years of growth they never had. The money-weighted return, which is what a broker statement calls your personal rate of return, accounts for the timing of every payment in.
Total return = (Final − Money in) / Money in × 100 CAGR = [(Final / Initial)^(1 / years) − 1] × 100
Money in is the initial amount plus every contribution. CAGR applies only when there were no contributions; with them the calculator solves instead for the monthly rate that grows the initial amount and each payment to the final value, then annualises it.
Plain ROI has no sense of time
Return on investment measures how much an investment gained relative to what went in, and stops there. It contains no information about how long that took, which makes it useless for comparing investments held over different periods, the comparison people most often use it for.
A 50% return is a 50% ROI whether it arrived in one year or ten. Annualised, those are entirely different results: 50% a year in the first case, and 4.1% a year in the second. Over three years the same 50% is 14.5% annually. The ROI figure is identical in all three and describes none of them.
- Use ROI to describe a single completed investment. Use the annualised figure whenever two investments are being compared.
- A negative ROI annualises the same way, which matters when comparing how badly two holdings performed.
- Property returns are frequently quoted as total ROI over long holding periods, which flatters them considerably against annualised equity returns.
What belongs in the denominator
ROI is only as meaningful as the cost figure it divides by, and that figure is routinely understated. The purchase price is easy to remember; transaction fees, ongoing charges, taxes and the cost of any work done to the asset are easy to leave out.
Where money went in and out during the holding period the simple formula stops working altogether. Adding to a position part-way through changes both what was invested and for how long, and a single ROI figure cannot represent it. That requires a money-weighted return, which is the same calculation as IRR.
- Include fees on both ends. Buying and selling costs come out of the return regardless of how the asset performed.
- Income received along the way (dividends, rent, interest) belongs in the return, and omitting it understates total performance substantially over long periods.
- Inflation is not deducted anywhere in this calculation. A 4% annualised return during 3% inflation is roughly 1% in real terms.
Frequently Asked Questions
What is CAGR?
⌄
CAGR is the compound annual growth rate, the constant yearly rate that would grow your initial amount to its final value over the holding period.
Why use CAGR instead of total return?
⌄
Total return alone ignores how long the money was invested. CAGR normalises for time, so you can fairly compare a 3-year and a 10-year investment.
Does CAGR reflect volatility?
⌄
No. CAGR smooths the journey into a single rate and does not show the ups and downs that occurred along the way.
Does this include dividends or fees?
⌄
Only if you include them in the final value. For a true picture, use the total value received (including income) and subtract any fees and taxes.