How to Calculate ROI: Return on Investment Explained
By Calqpro Editorial Team · April 20, 2026 · 5 min read
ROI is the universal language of investing and business decisions. It lets you compare completely different opportunities on equal footing — whether you're evaluating a stock, a rental property, a business investment, or even a college degree.
The Basic ROI Formula
Example: You invest $5,000 in a stock. It grows to $6,800. ROI = (($6,800 − $5,000) ÷ $5,000) × 100 = 36%.
ROI Examples Across Asset Classes
| Investment | Cost | Return | ROI |
|---|---|---|---|
| S&P 500 index (avg year) | $10,000 | $11,000 | 10% |
| Rental property | $50,000 down | $6,000/yr net | 12% |
| Home renovation (kitchen) | $25,000 | +$20,000 home value | 80% |
| College degree (avg) | $120,000 | +$900k lifetime earnings | 650% |
ROI vs. Annualized ROI
Basic ROI ignores time. A 50% return over 10 years is very different from 50% in 1 year. Annualized ROI (CAGR) accounts for this:
$10,000 growing to $15,000 in 5 years: CAGR = (1.5)^(1/5) − 1 = 8.45%/year.
What's a Good ROI?
- Stock market (S&P 500): ~10%/year historically — the benchmark to beat
- Real estate: 8–12% total return (appreciation + rental income)
- Small business: 15–30% is considered healthy
- Savings account: 4–5% (risk-free, but barely beats inflation)
Any investment with ROI below the S&P 500's historical average deserves scrutiny — unless it comes with significantly less risk.
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