What Is a Good ROI? Benchmarks by Investment Type

ROI Isn't Absolute — It's Relative

A 5% return on a savings account is excellent. A 5% return on a startup investment over 10 years is poor. ROI only means something in context: what's the risk, the time horizon, and the alternative?

The formula is: ROI = (Net Profit ÷ Cost of Investment) × 100

Use our ROI Calculator to calculate return on any investment including annualized return.

ROI Benchmarks by Asset Class

Figures are historical averages or current approximations. Past performance doesn't guarantee future results.

The S&P 500 as a Benchmark

The S&P 500 has returned approximately 10% annually (nominal) over the past century, or roughly 7% after inflation. This is widely used as the baseline for evaluating other investments — if you can't reasonably expect to beat the S&P 500 over a long period, you may as well index.

For shorter periods, the S&P 500 is volatile: it lost ~38% in 2008, gained ~32% in 2013, and lost ~19% in 2022. Annual ROI figures are only meaningful when averaged over 10+ year periods.

Real Estate ROI

Real estate ROI combines two components:

1. Rental yield: Annual rent ÷ property value

• A $300,000 property renting for $1,800/month = $21,600/year
• Gross yield: $21,600 ÷ $300,000 = 7.2%
• After expenses (maintenance, insurance, vacancy, taxes): net yield is typically 3–5%

2. Appreciation: Historical US home price appreciation averages ~4% annually, or ~1–2% above inflation.

Combined gross ROI: 6–12% is typical for well-selected rental properties in most US markets. However, real estate requires significant capital, is illiquid, and involves management overhead that stocks don't.

Small Business ROI

Owner-operated businesses frequently generate 15–30% ROI or more on invested capital — but with substantially higher risk and labor. The ROI calculation must account for the owner's time as a cost: a business returning 20% on $50,000 invested is less impressive if it requires 60 hours/week of your time.

Adjusted for fair market wages, many small businesses have effective ROIs much lower than they appear on paper.

What ROI Doesn't Capture

Time value: A 50% ROI over 10 years sounds impressive, but it's only ~4.1% annualized. Always compare annualized returns when evaluating investments over different time horizons.

Risk: A 12% ROI from a concentrated single-stock bet and a 12% ROI from a diversified index fund are not comparable outcomes — one carries dramatically more variance.

Inflation: A 5% return with 3% inflation is a real return of only 2%. ROI in nominal terms can mask loss of purchasing power.

Liquidity: Real estate and private equity can generate good ROIs but may lock up capital for years.

Annualizing ROI for Fair Comparison

To compare investments held for different durations, use the compound annual growth rate (CAGR):

CAGR = (Ending Value ÷ Beginning Value)^(1/years) − 1

Example: $10,000 grows to $18,000 over 7 years. CAGR = (18,000 ÷ 10,000)^(1/7) − 1 = 1.8^0.1429 − 1 = 8.7% per year

This is what the ROI Calculator computes as "annualized return."

Conclusion: Key Takeaways

• There is no universal "good ROI" — it depends on asset class, risk, and time horizon
• S&P 500 historical average (~10% nominal / ~7% real) is the standard benchmark for long-term equity
• Real estate typically delivers 6–12% gross ROI combining rental yield + appreciation
• Always compare annualized returns when evaluating investments over different periods
• Nominal ROI minus inflation = real ROI — the figure that matters for purchasing power

Calculate annualized ROI on any investment →

Also see: 15-Year vs 30-Year Mortgage for a real estate investment context where ROI comparisons matter.