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ROI vs CAGR
Return on investment (ROI) shows your total gain or loss as a percentage of what you invested. Compound annual growth rate (CAGR) spreads that return over the holding period, so you can compare investments held for different lengths of time.
How is CAGR calculated?
CAGR = (final value ÷ initial value) ^ (1 ÷ years) − 1.
ROI vs annualized return
Return on investment (ROI) tells you how much your investment grew in total: (current value − amount invested) ÷ amount invested. It does not account for time, so a 100% gain over one year and a 100% gain over five years look the same.
The annualized return, or compound annual growth rate (CAGR), fixes that by showing the steady yearly rate that would have produced the same result: (current value ÷ amount invested)1 ÷ years − 1.
A worked example
If $1,000 grows to $3,000 over three years, your ROI is 200%. The annualized return is 31/3 − 1, or about 44.2% a year. If the same $1,000 had grown to $3,000 in one year, the ROI would still be 200%, but the annualized return would be 200% a year.
Getting an accurate number
- Include trading and network fees in the amount invested, or your ROI will look better than it was.
- If you invested in several lumps, a single CAGR figure is only an approximation. For regular investments, the DCA calculator gives a clearer picture.
- Compare like with like: crypto returns are usually far more volatile than stock or bond returns, so a high annualized figure can come with deep drawdowns along the way.
Results are estimates for education only, not financial advice. Past returns do not predict future returns.