How to Calculate Your Investment Return (ROI and CAGR)
Learn how to calculate investment return using ROI and CAGR, adjust for inflation, and benchmark your results against the S&P 500 — with worked examples.
Why Calculating Your Investment Return Correctly Matters
Knowing how to calculate investment return is not just about bragging rights — it tells you whether your money is working as hard as it could be. A 50% gain over six years sounds great until you realize that is only 7% per year, which barely beats inflation after taxes.
This guide walks through five steps: gathering your numbers, calculating simple ROI, computing annualized CAGR, adjusting for inflation, and comparing your results against real benchmarks.
Step 1: Gather Your Numbers
Before you open any calculator, collect three data points:
- Initial investment — the total amount you put in (including any commissions or fees paid at purchase).
- Final value — the current or sale value of the investment, including any dividends received.
- Holding period — the number of years (or fractional years) between purchase and sale or today.
For the worked example throughout this article:
- Bought an S&P 500 ETF: $15,000 in January 2019
- Sold for: $27,500 in January 2025
- Holding period: 6 years
Step 2: Calculate Simple ROI
How to calculate investment return in its simplest form:
ROI = (Final Value − Initial Investment) ÷ Initial Investment × 100
Plugging in the example:
ROI = ($27,500 − $15,000) ÷ $15,000 × 100 = 83.3%
Simple ROI is useful for comparing two investments held for the same length of time. If one investment returned 83% over 6 years and another returned 60% over 6 years, the first was clearly better.
The problem: simple ROI ignores time. A 200% return over 20 years is far less impressive than 200% over 5 years. That is where CAGR comes in.
Step 3: Calculate CAGR for Annualized Comparison
CAGR (Compound Annual Growth Rate) answers: "What consistent annual return would produce this result?"
CAGR = (Final Value ÷ Initial Investment)^(1 ÷ Years) − 1
Continuing the example:
CAGR = ($27,500 ÷ $15,000)^(1/6) − 1 = (1.8333)^(0.1667) − 1 = 10.6% per year
CAGR is the number to use when comparing investments of different lengths. It is also the figure you should benchmark against indices (see Step 5).
You can verify this instantly using the CalcKit ROI calculator — enter initial value, final value, and years to get both ROI and CAGR in one click.
Step 4: Adjust for Inflation to Get Real Return
Nominal returns overstate how much richer you actually got. The Fisher equation converts nominal to real return:
Real Return = (1 + Nominal Rate) ÷ (1 + Inflation Rate) − 1
Assuming 3% average annual inflation over the 6-year period:
Real CAGR = (1.106 ÷ 1.03) − 1 = 7.4% per year
That 10.6% nominal CAGR becomes 7.4% in purchasing-power terms. Still strong — but the distinction matters when planning retirement income or comparing against inflation-adjusted benchmarks.
To see how inflation erodes purchasing power over different timeframes, use the CalcKit inflation calculator.
Step 5: Compare to Benchmarks
A return only has meaning in context. Here are the long-run averages you should measure against:
| Benchmark | Avg Annual Return (Nominal) | Avg Annual Return (Real) |
|---|---|---|
| S&P 500 (since 1926) | ~10.5% | ~7.0% |
| 60/40 stock-bond portfolio | ~8.5% | ~5.5% |
| US 10-year Treasury bonds | ~4.5% | ~1.5% |
| Gold | ~3–5% | ~0–2% |
| Real estate (appreciation only) | ~3–4% | ~0–1% |
| High-yield savings account | ~4–5% (current) | ~1–2% |
The example ETF returned 10.6% nominal / 7.4% real CAGR — matching the long-run S&P 500 average almost exactly. That is a strong benchmark result.
If your investment meaningfully underperformed the relevant benchmark over a 5+ year period, it is worth asking whether the asset class, fees, or timing explain the gap.
Conclusion: What to Remember
- Simple ROI (83.3% in the example) measures total gain but ignores time — use it only when comparing same-duration investments.
- CAGR (10.6%) is the right number for comparing investments of different lengths and for benchmarking against indices.
- Real CAGR (7.4% after 3% inflation) tells you how much your purchasing power actually grew.
- The S&P 500 has returned ~10.5% nominal / ~7% real annually since 1926 — a tough but achievable benchmark.
- Fees matter: a 1% annual expense ratio silently cuts a 10% nominal return to 9%, which over 30 years reduces the ending balance by roughly 22%.
Run the numbers on your own investments with the CalcKit ROI calculator. For modeling how your returns compound over time, the CalcKit compound interest calculator lets you project future value under different return assumptions.