If you're new to investing, you'll hear the term "ROI" all the time. It stands for Return on Investment, and it's simply the most important way to measure how well your investment has performed.

In plain English, ROI answers one simple question: "How much money did I make compared to how much money I put in?"

It's always expressed as a percentage. A positive ROI (like +25%) means you made money. A negative ROI (like -10%) means you lost money.

The Simple ROI Formula

The most basic formula for ROI is:

(Current Value - Initial Cost) / (Initial Cost) = ROI

To turn that decimal into a percentage, you just multiply it by 100.

  • Current Value: What your investment is worth today.
  • Initial Cost: The total amount you paid for the investment.

How to Calculate ROI: An Example

Let's say you bought 10 shares of a stock last year for $100 per share.

  • Your Initial Cost was: 10 shares x $100 = $1,000

Today, the stock price is $125 per share.

  • Your Current Value is: 10 shares x $125 = $1,250

Now, let's plug those numbers into the formula:

  1. ($1,250 - $1,000) / $1,000
  2. $250 / $1,000
  3. = 0.25

To get the percentage, multiply by 100. Your ROI is 25%.

Try the Calculator

Use this simple calculator to find the ROI for any of your investments.

Simple ROI Calculator

Your Return on Investment (ROI) is:

...%

What did you pay for it? (Initial Cost): [ $ ] What is it worth now? (Current Value): [ $ ] (Calculate) Your total Return on Investment is: [ _ ]%

What About Dividends or Fees? (The True ROI)

The simple calculator above is great for a quick look, but to get a truly accurate picture, you need to account for any extra money you made or paid.

  • Dividends: If your stock paid you $50 in dividends, you should add that to your "Current Value."
  • Fees: If you paid a $10 trading commission to buy the stock, you should add that to your "Initial Cost."

Example with Dividends and Fees:

  • Initial Cost: $1,000 (stock) + $10 (fee) = $1,010
  • Current Value: $1,250 (stock) + $50 (dividends) = $1,300

Let's calculate the true ROI:

  1. ($1,300 - $1,010) / $1,010
  2. $290 / $1,010
  3. = 0.287

Your True ROI is 28.7%.

Why Is ROI So Important?

ROI is the great equalizer. It lets you compare any investment to any other investment.

  • Which did better: your friend's $500 crypto investment or your $10,000 in an index fund?
  • Was it better to put money into your 401(k) or buy a rental property?

You can't just compare the total dollars earned, because you started with different amounts. But by calculating the ROI percentage, you can see which investment worked harder for you.