When someone says they got a “great ROI” on an investment, what do they actually mean? A 10% return sounds decent — but 10% over 10 years is dramatically different from 10% over 10 months. And 10% in a safe government bond is entirely different from 10% in a volatile startup.

Context is everything. Here’s how to think about ROI properly.

What is ROI?

Return on Investment (ROI) measures the gain or loss on an investment relative to the amount invested:

ROI = ((Final Value − Initial Investment) ÷ Initial Investment) × 100

A £10,000 investment that grows to £13,500 has an ROI of 35%.

But that’s simple ROI — it doesn’t account for how long the money was tied up. For that, you need annualised ROI.

Simple ROI vs. annualised ROI

Simple ROI tells you the total percentage gain or loss. Annualised ROI tells you the equivalent per-year return, making investments held for different time periods directly comparable.

Annualised ROI = ((1 + ROI/100)^(1/years) − 1) × 100

Examples:

  • 35% ROI over 1 year = 35% annualised
  • 35% ROI over 3 years = 10.5% annualised
  • 35% ROI over 10 years = 3.1% annualised

The same 35% total return looks very different depending on how long it took.

Calculate your ROI and see the annualised return →

What is a good ROI by asset class?

There’s no universal “good” ROI — it’s always relative to risk, liquidity, and available alternatives. Here’s a practical reference:

Savings and cash equivalents

  • High-yield savings accounts / money market funds: 4–5% (low risk, highly liquid)
  • Certificates of deposit (CDs) / fixed-term bonds: 4–6% (low risk, locked in for a period)
  • Treasury bonds (US/UK gilts): 3–5% (government-backed, very low risk)

A “good” ROI for cash savings is anything materially above the base rate without excessive risk.

Stocks and equity funds

  • S&P 500 historical average: approximately 10% per year (before inflation), or ~7% after inflation
  • Individual stocks: 10–20%+ per year is possible but comes with significant volatility risk
  • Index funds / ETFs: 7–12% long-term average is a realistic expectation

For stock market investments, the benchmark question is: “did I beat the index?” If your stock portfolio returns 8% while the S&P 500 returns 12%, you had poor risk-adjusted performance.

Real estate

  • Rental property gross yield: 5–10% (before expenses, maintenance, vacancies)
  • Total return (appreciation + yield): 8–12% historically in most markets
  • REITs (Real Estate Investment Trusts): 8–11% historical average

Real estate ROI needs to include all costs: mortgage interest, property management, maintenance, insurance, and taxes.

Small business

  • Average small business ROI: 15–20% (highly variable by industry)
  • Acceptable minimum: Many investors want at least 10–15% to justify the risk vs. passive alternatives
  • Exceptional: 30–50%+ in high-growth or capital-light businesses

Business ROI should always be compared to what you could earn by deploying the same capital passively (your “opportunity cost”).

What’s a bad ROI?

Any ROI significantly below inflation is a bad ROI — you’re losing purchasing power in real terms. With inflation running at 3–4%, a 1–2% return in a savings account is technically negative in real terms.

Red flags for bad ROI:

  • Negative ROI (obvious, but worth stating — you lost money)
  • Below-inflation returns on long-term money
  • Returns that don’t adequately compensate for the risk taken
  • Illiquid investments with mediocre returns (your money is locked up and isn’t growing much)

How to improve ROI

For investments

  • Reduce fees. A 1% management fee might sound small, but it reduces your ending balance by 20–25% over 30 years. Low-cost index funds consistently outperform actively managed funds after fees.
  • Reinvest returns. Dividends reinvested dramatically increase long-term ROI through compounding.
  • Time in market over timing the market. Studies consistently show that investors who stay invested outperform those who try to time entries and exits.

For business investments

  • Track actual vs. projected ROI. Many business owners overestimate ROI at the planning stage. Build in conservative assumptions.
  • Measure the right inputs. ROI is only as useful as the numbers you put in. Include all costs — including your own time at a fair hourly rate.
  • Improve margins, not just revenue. A business that grows revenue by 20% but costs by 25% has negative ROI on that growth.

Quick ROI calculator

Use our free ROI calculator to:

  • Calculate both simple and annualised ROI
  • Visualise your gain or loss with a clear chart
  • Compare investments with different holding periods

No sign-up, no ads, no data stored.