How to Calculate Percentage Return on Investment

Return on Investment, or ROI, is one of the most important indicators used by investors and entrepreneurs to evaluate the success of their investments, whether in terms of money or time. For investors, knowing the ROI is key when deciding where to invest their capital, how to diversify their portfolio effectively, and make decisions based on real data rather than feelings.

Learning how to calculate ROI is undoubtedly worth every investor’s time. What is the principle behind the ROI formula then? What is an average return on investment, and what is a good one to aspire for?

ROI Definition

Return on Investment is the return on an investment that expresses the profit or loss the investment has generated in relation to its costs. Simply put, it shows how much net profit each dollar invested will bring you. It is of fundamental importance to investors because it allows them to objectively assess the performance and effectiveness of individual investments.

ROI serves as a universal metric that helps compare different opportunities regardless of their type or size. This allows investors to better assess the ratio between expected return and risk, plan capital allocation, and make informed decisions about where to direct their funds. From a theoretical point of view, ROI is also a tool for monitoring the long-term stability and sustainability of a portfolio, as it shows which investments bring real value and which should be reevaluated or terminated.

Calculating Your Return on Investment

Calculating ROI is quite straightforward; it merely requires accurately determining and calculating all your costs and revenues.

The general formula for calculating return on investment is as follows:

ROI = (Profit from investment – Investment costs) / Investment costs × 100

Example of calculation with specific amounts: an investor buys 100 shares of a certain company for 200 euros per share, for a total of EUR 20,000. After a year, their value increases to EUR 24,000, with the additional EUR 1,000 received by said investor in dividends. The total return of EUR 5,000 therefore represents an ROI of 25%:

ROI = (25,000 – 20,000) / 20,000 × 100 = 25%

The calculation would be similar for cryptocurrencies. If an investor buys Bitcoin for EUR 20,000 and sells it for EUR 26,000, the return is 30%. At the same time, however, they must be aware of the higher volatility of the market, which can quickly shift the current return downwards.

Simply put, the principle of calculating return on investment is as follows: divide the net profit by the cost, then multiply the resulting number by 100 to get the ROI expressed as a percentage.

What is an Average Return on Investment?

When discussing average ROI, most analysts refer to long-term annualized returns across broad markets such as stocks, commodities, and crypto. Over many decades, the US equity market has delivered roughly 10–11% annualized nominal return before inflation; more conservatively, after adjusting for inflation that shrinks to 6–7% real. European equity markets, such as those tracked by the MSCI Europe Index, have historically produced somewhat lower nominal returns of around 7–8% per year over long spans. Commodities and cryptocurrencies introduce much greater volatility, so their averages can deviate heavily depending on timeframe and selection.

To illustrate with an example: suppose an investor put €10,000 into a broad European stock index fund in 2015, and it achieved a 7% compound annual return. After 8 years, that investment would grow to about €10,000 × (1.07)^8 ≈ €15,718. That implies a total gain of approximately €5,718—or about 57% in aggregate over 8 years, which means the investor averaged around 7% per year. That kind of average is realistic, though not guaranteed, for equity investors who hold across cycles and reinvest dividends.

What is a Good Percent Return on Investment?

A “good” ROI is subjective and depends on risk, timeframe, and asset class. Many financial professionals regard 10% annualized nominal return as a solid benchmark for equity investments in a balanced portfolio, especially in developed markets. If an investment consistently outpaces 10% per year over a medium time horizon of 5–10 years, it is generally considered above average. However, in recent years some sectors—growth equities, certain cryptocurrencies, and select commodities—can deliver much higher but also riskier returns.

If you have invested hypothetical €5,000 into a growth tech stock or a mid-cap cryptocurrency in January 2020, and if that asset delivered 20% annualized over five years, a high but plausible outcome in favorable conditions, at the end you’d have €5,000 × (1.20)^5 ≈ €12,442. That’s nearly 2.5 times your initial capital, or a 149% gain in five years. Such a return is clearly good—indeed exceptional—but comes with significantly higher volatility and risk of large drawdowns during the period.

In practice, a good percent return is one that compensates for the risk you take: for lower-volatility assets, 7–9% might already be strong, while for high-risk assets, 15% or more might be expected. Always gauge performance relative to benchmark returns and consider risk-adjusted measures such as the Sharpe ratio and drawdowns.

What to Look out for When Calculating ROI?

Like any formula, this one has its pitfalls. The time and effort you put into investing is difficult to quantify, let alone convert into this formula. Similarly, the additional benefits of a particular investment or project beyond net profit are unquantifiable. In addition, this simplistic model does not take equity into account. It is therefore necessary to educate yourself on investment issues in order to gain a more complete picture of your financial situation.