ROI stands for Return on Investment — it's a simple way to measure how much you gained or lost relative to what you put in. 'Good' ROI depends entirely on the asset class, the time period, and how much risk you took to achieve it.
How ROI is calculated
(Net profit ÷ cost of investment) × 100 = ROI%. Buy a stock for $1,000, sell for $1,300, net $300 profit: ROI = 30%. Simple — but it doesn't account for time. A 30% ROI over 10 years is very different from 30% in one year.
Annualised ROI vs. total ROI
Always convert multi-year returns to annualised ROI for fair comparison. Annualised ROI = (1 + total ROI)^(1/n) - 1, where n = years. A 30% total return over 5 years annualises to about 5.4%/year — closer to a bond than a strong stock.
Benchmarks by asset class
- S&P 500 index fund: ~10% average annual return (1926–2023)
- Real estate: 3–5% appreciation + rental yield
- Rental property total return: 8–12% in good markets
- Small business: 15–30% ROI is typical for successful ventures
- Savings account (2024): 4–5%
Risk-adjusted return matters more
A 15% return on a volatile single stock and a 10% return from a diversified index fund aren't fairly comparable. The Sharpe ratio — return above the risk-free rate divided by volatility — gives a more useful measure of whether extra risk is being rewarded appropriately.
Frequently Asked Questions
Is 10% annual ROI realistic for individual investors?
It is achievable long-term through diversified index funds, which have historically averaged close to 10% nominal annually. But this is not guaranteed, involves significant year-to-year volatility, and requires staying invested through downturns. Most actively managed funds underperform the index after fees, so 10% is more reliably achieved through passive index investing than stock picking or market timing.
How do I convert a total return to an annualised ROI?
Use the compound annual growth rate formula: (1 + total ROI)^(1/years) − 1. Example: a 50% total return over 5 years annualises to (1.50)^(0.20) − 1 = approximately 8.45% per year. Always use annualised ROI when comparing returns across different time periods — raw total return figures are misleading without the time dimension.
What counts as a good ROI on rental property?
A combined total return of 8–12% (net rental yield plus estimated annual capital appreciation) is generally considered solid in stable markets. Cash-on-cash return — net annual cash flow divided by actual cash invested — of 6–10% is a common benchmark for leveraged rental properties. Actual results vary significantly by location, financing costs, and vacancy rates.
Model your returns
Use our Stock Return Calculator to model capital gains, dividends, and after-tax ROI on a specific investment.