Return on investment measures what you got back relative to what you put in. The total figure is easy; the useful figure is the annual one, and this calculator shows both — because comparing investments without it is misleading.
Key terms
- Total return — the whole gain or loss as a percentage of what you invested, regardless of how long it took.
- Annualised return — the equivalent steady yearly rate. This is the number that makes different investments comparable.
- Gain — the profit or loss in money rather than percentage.
How it works
The total return is a single division. The annual figure requires a root, because returns compound rather than adding up.
Return on investment
total = (final − initial) ÷ initial × 100 · annual = ((final ÷ initial)1 ÷ t − 1) × 100
t is the number of years held. The annual figure is a geometric mean, not the total divided by the years.
$1,000 becoming $1,500 over five years is a 50% total return — and 8.45% a year, not 10%. Dividing 50 by 5 overstates it, because each year’s growth builds on the last. The difference widens as returns and holding periods grow.
Why annualising matters
A 50% return over five years and a 30% return over two are hard to rank by their totals. Annualised, they are 8.45% and 14.02% — the smaller total is comfortably the better investment. Any comparison that ignores time is not really a comparison.
Losses annualise too, and more gently than the total suggests. Halving your money over two years is a 50% total loss but 29.29% a year, because losses compound in the same way.
What this does not include
Fees, commissions, taxes and dividends all sit outside the calculation unless you build them into the figures you enter. A return quoted before costs can look meaningfully better than the one you actually received, so where possible use the amount you actually paid and the amount you could actually realise.
It also assumes a single investment and a single exit. Money added or withdrawn part-way through needs a money-weighted return instead, which is a different calculation.
How to use this calculator
- Enter what you originally invested, including costs if you know them.
- Enter what it is worth now, or what you sold it for.
- Enter how long you held it. Leave it blank if you only want the total.
- Compare the annual figure with alternatives, not the total.
Frequently asked questions
Why is the annual return not the total divided by the years?
Because returns compound. Growing 8.45% a year for five years multiplies your money by 1.5; growing 10% a year would multiply it by 1.61. Dividing the total by the years always overstates the annual rate.
Does it include dividends or interest?
Only if you add them to the current value. For a total-return figure, include everything the investment paid out as well as what it is now worth.
Can the annual return be shown for less than a year?
Yes — enter a decimal, such as 0.5 for six months. Read it cautiously, though: annualising a short period assumes the same rate continues for a full year, which for volatile investments is a strong assumption.
What counts as a good return?
There is no fixed answer, and it depends heavily on risk. A return should be judged against what comparable investments of similar risk produced over the same period, not against a fixed benchmark.
Why does a zero starting amount give no answer?
Because the percentage would divide by zero. A return on nothing has no meaning, so the calculator declines rather than showing infinity.
