Absolute ROI vs. Annualized ROI
Absolute ROI is the total percentage gain or loss relative to what you invested: (Received − Invested) / Invested × 100. It tells you how much your investment grew in total, regardless of how long it took. A 45% absolute ROI is the same number whether the holding period was 2 years or 10.
Annualized ROI (also known as CAGR — Compound Annual Growth Rate) normalizes the return to a per-year basis: (Received / Invested)1/years − 1. This makes investments of different durations directly comparable. A 45% absolute return over 3 years annualizes to roughly 13.2%; over 10 years it annualizes to just 3.8%.
When to use each metric
Use absolute ROI when comparing investments of the same duration, or when you simply want to know the total gain. Use annualized ROI when comparing investments held for different lengths of time, or when benchmarking against a rate (e.g. "did I beat the S&P 500's 10% annual return?").
Frequently Asked Questions
Is annualized ROI the same as CAGR?
Yes, for a single lump-sum investment with no intermediate cash flows, annualized ROI and CAGR are identical. Both use the formula (FV / PV)1/t − 1, where t is the holding period in years. The terms are used interchangeably in practice.
How is the holding period calculated?
The holding period is the exact number of calendar days between the investment date and the exit date, divided by 365.25 (accounting for leap years). This means a 366-day holding period through a leap year and a 365-day period in a regular year produce slightly different annualized returns.
Does this account for dividends or intermediate cash flows?
No — this calculator assumes a single investment in and a single cash out. If you received dividends or made additional contributions during the holding period, add them to the "amount received" figure to approximate total return. For a precise money-weighted return across multiple cash flows, use the IRR calculator.
What is a good ROI?
Context matters. The S&P 500 has returned roughly 10% annualized before inflation (~7% real) over the long run, making it a common benchmark for equity investments. Real estate, private equity, and venture capital targets vary widely. For short-term or risk-free comparisons, look at current Treasury bill rates or high-yield savings account rates as a baseline.