What Counts as a Good ROI?

Return on investment, or ROI, measures how much you made relative to what you put in. It is one of the most quoted numbers in finance and one of the most misunderstood, because a raw ROI figure means little without context.

The basic formula

ROI is your net gain divided by your cost, expressed as a percentage. Turn $1,000 into $1,200 and your ROI is 20%. Simple — but that 20% could be spectacular or mediocre depending on how long it took and how much risk you took to get it.

Time changes everything

A 20% return in one year is excellent; the same 20% over ten years is poor — under 2% a year. This is why annualized return, not total return, is the fair way to compare investments of different lengths. Whenever someone quotes an ROI, the first question is: over what period?

Benchmarks and the inflation test

• The US stock market has returned roughly 10% a year on average over the long run, before inflation.
• After inflation of around 2-3%, that is closer to 7% in real, spending-power terms.
• A high-yield savings account might pay 4-5% with almost no risk.

A good ROI is one that beats what you could earn safely, compensates you for the risk you took, and stays ahead of inflation — because a 5% return in a year of 6% inflation actually lost you purchasing power. Judge returns in real terms, and against a sensible benchmark, rather than by the headline number alone.

Calculate and annualize your own returns with the calculators below.