Question 1

What is ROI?

Accepted Answer

ROI (Return on Investment) measures the profitability of an investment as a percentage. It shows how much you gained or lost relative to your initial investment. Formula: ROI = (Final Value - Initial Investment) / Initial Investment × 100.

Question 2

What's a good ROI?

Accepted Answer

A 'good' ROI depends on the investment type. Stock market historically returns ~10% annually. Real estate averages 8-12%. A higher ROI is better, but consider the risk involved. Compare to benchmarks and inflation.

Question 3

Does ROI account for time?

Accepted Answer

Basic ROI doesn't account for time. A 50% ROI over 1 year is much better than 50% over 10 years. For time-adjusted returns, use CAGR (Compound Annual Growth Rate) which annualizes the return.

Question 4

Should I include fees in ROI calculation?

Accepted Answer

Yes! For accurate ROI, subtract all costs including fees, taxes, and expenses from your net gain. This gives you the true return. For example, if you invested $10,000 and sold for $12,000 but paid $200 in fees, your ROI is ($12,000 - $200 - $10,000) / $10,000 = 18%.

Question 5

Can ROI be negative?

Accepted Answer

Yes, ROI can be negative if your final value is less than your initial investment. A negative ROI means you lost money on the investment. For example, investing $10,000 and selling for $8,000 gives a -20% ROI.

Question 6

How do I compare different investments using ROI?

Accepted Answer

ROI allows you to compare investments on equal footing. However, also consider time period, risk level, and liquidity. A 20% ROI in 1 year is better than 20% in 5 years. Use CAGR for time-adjusted comparisons.

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ROI Formula

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