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Investment Return Calculations Explained
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Knowing how to calculate investment returns helps you compare options, evaluate performance, and set realistic expectations. There are several common metrics—each useful in different contexts.
Simple Return (Total Return)
Simple Return = (Final Value − Initial Value) / Initial Value × 100
Example: You invest $1,000 and it grows to $1,350.
Return = (1350 − 1000) / 1000 × 100 = 35%
This tells you how much you made in total but says nothing about how long it took.
Annualized Return (CAGR)
Compound Annual Growth Rate (CAGR) expresses multi-year returns as a consistent annual rate.
CAGR = (Final Value / Initial Value)^(1/Years) − 1
Example: $1,000 grows to $1,350 over 4 years.
CAGR = (1.35)^(1/4) − 1 ≈ 7.8% per year
CAGR is the most useful single number for comparing investments over different time periods.
Return on Investment (ROI)
ROI is the same as simple return and is widely used in business to evaluate projects. For investments with ongoing contributions, a simple ROI is less meaningful—use CAGR or an IRR calculation instead.
What the Calculator Does Not Include
Investment returns in practice are affected by taxes on dividends and capital gains, transaction fees, currency fluctuations (for international investments), and inflation. Our calculator provides a gross return estimate. Net real returns will be lower.
Try the Investment Calculator.
Frequently Asked Questions
What is a "good" annual return?
Historically, broad US stock market indices have averaged 7–10% annually before inflation. Bonds average lower. Individual stocks vary widely. Use these benchmarks cautiously—past performance does not guarantee future results.
What is the difference between nominal and real return?
Nominal return is the raw percentage gain. Real return adjusts for inflation. If your investment returned 7% and inflation was 3%, your real return was approximately 4%.