What Is a Good ROI? How to Measure Investment Returns

Return on investment (ROI) measures how much profit an investment made relative to its cost. The formula is the gain divided by the original cost, shown as a percentage. What counts as 'good' depends on the asset and the risk: the long-run stock market has averaged roughly 7–10% a year before inflation, so beating that consistently is genuinely good.

The formula

ROI is one of the simplest performance measures in finance. You take the gain on an investment, the proceeds minus what you paid, divide it by the original cost, and express the result as a percentage. The beauty of expressing it as a percentage is that it puts a $50 gain on a $100 stake and a $50,000 gain on a $100,000 stake on the same footing, so you can compare investments of completely different sizes.

Worked example. You invest $5,000 and later sell for $6,500. ROI = (6,500 − 5,000) ÷ 5,000 = 30%. But if that took five years, the annualised return is only about 5.4% a year, which is the figure that lets you compare investments fairly.

Always annualise

A 30% total return sounds impressive until you learn it took a decade. Annualising, converting to a yearly rate, is the only fair way to compare investments of different lengths, and it is where CAGR comes in. The compound annual growth rate smooths a total return into the steady yearly rate that would have produced it, accounting for compounding along the way; we explain it in detail in what is CAGR.

Without annualising, raw ROI quietly flatters slow investments and punishes fast ones. A 50% return earned over ten years is worth far less than a 50% return earned in two, even though the headline number is identical. Whenever you compare two opportunities, convert both to an annual rate first, otherwise you are comparing apples with oranges, and the comparison will mislead you.

ROI ignores risk

A high ROI achieved by taking enormous risk is not necessarily a good investment. Always weigh the return against the risk taken to earn it; two investments with the same ROI can be worlds apart in danger.

ROI is a backward-looking, single-number summary: it tells you what happened, not how much you risked or how likely you were to lose money along the way. A speculative bet that could just as easily have wiped you out is not the equal of a steady, diversified portfolio that delivered the same percentage. This is why seasoned investors pair every return figure with a sober look at volatility, drawdowns, and the chance of permanent loss, return without context is only half the story.

Putting it to work

Use ROI as a quick first read on how hard your money worked, then refine it: annualise it so the time period is honest, and judge it against the risk you took. When you are doing the arithmetic yourself it is easy to slip up on the time dimension, so reach for a calculator to keep the comparison fair. Our financial tools hub collects the calculators you will use most often.

Written by

Federico Romaldi

Co-Founder, Worthmap

Published: June 6, 2026

Federico is a co-founder of Worthmap, a wealth-intelligence platform built for serious investors. With a background in software engineering and a long-standing passion for value investing, he created Worthmap to bridge the gap between net-worth tracking and investment analysis.