Ask five people what a good ROI is and you'll get five answers, because the honest reply depends on three things: how long the money was tied up, how likely it was to go wrong, and what got counted as cost in the first place. There is still a useful answer, though. It starts at roughly 10% a year, what the US stock market has averaged with zero effort, and goes up from there as risk and work increase. Here's how to apply that yardstick to anything.
ROI = (what you got back − what you put in) ÷ what you put in × 100. Invest $10,000 and walk away with $13,500, and your ROI is ($13,500 − $10,000) ÷ $10,000 = 35%. The number is unitless, which is both its superpower and its trap: a 35% ROI on a bond, a flip, and a Facebook ad campaign look identical on paper while meaning completely different things in the world.
The formula also has a blind spot big enough to drive a truck through: it says nothing about time. That 35% could be one spectacular year or one mediocre decade, so convert everything to a per-year figure before comparing. Our ROI calculator does the conversion, reporting total ROI and annualized return side by side.
The cleanest benchmark is the return you could get without skill, effort, or luck: buying the whole market and waiting. US large-cap stocks have returned about 10% a year in nominal terms over the last century, closer to 6 or 7% after inflation. Anything you actively choose, fund, or operate should be expected to beat that passive floor, because it's costing you risk and time.
| Investment | Typical annualized return | What makes it "good" |
|---|---|---|
| S&P 500 index fund (long-run average) | ~10% nominal, 6–7% real | It's the benchmark, not the goal |
| High-grade bonds | ~4–5% historically, less lately | Beats cash with modest risk |
| High-yield savings / CDs | 4–5% in the current rate environment | Good only for money you may need soon |
| US home appreciation (national average) | ~3–5% | Housing levered with a mortgage can beat it |
| Rental real estate | 5–10% net yield plus appreciation | Must beat indexing to pay for the landlord work |
| Small business / side project | 15–30% or nothing | Compensates illiquidity and concentration risk |
Read the table as a ladder, not a menu. Each rung up demands more of you: more risk, more work, more chance of losing the principal. A 12% rental return you baby every weekend is not obviously better than 10% from an index fund you never look at. A business showing 25% on paper but ignoring your unpaid Saturdays isn't showing 25% at all.
Total ROI divides; time compounds. Doubling your money sounds magnificent until you ask when. The compound annual growth rate, CAGR = (final ÷ initial)^(1 ÷ years) − 1, is what makes different holding periods comparable:
| Total return | Over 3 years | Over 5 years | Over 10 years |
|---|---|---|---|
| +50% | 14.5%/yr | 8.4%/yr | 4.1%/yr |
| +100% (2×) | 26.0%/yr | 14.9%/yr | 7.2%/yr |
| +200% (3×) | 44.2%/yr | 24.6%/yr | 11.6%/yr |
Scan the last row to the right and the lesson lands: tripling your money in a decade is 11.6% a year, barely ahead of the stock market's average, with a decade of patience and whatever risk you took along the way. Doubling in three years, 26% a year, is genuinely exceptional. The Rule of 72 gives you the same intuition in your head: divide 72 by the annual percentage to estimate doubling time, so ~7% doubles in about ten years and ~10% in about seven.
Enter what you invested, what it's worth now, and how long you've held it to see total ROI next to the annualized rate.
ROI Calculator →Four things, and each one can flip a decision. Inflation: 8% nominal during 2.5% inflation is a 5.4% real return, and the real number is the one that buys groceries. Risk: a coin-flip between 0% and 16% averages 8% on paper and feels nothing like a guaranteed 8% in your stomach. Opportunity cost: the honest comparison for any active investment is the ~10% you could have made doing nothing. And your own labor: hours count as cost at whatever you'd genuinely pay yourself.
Cash-flow timing matters too: early money can be reinvested, late money can't. When an investment has cash moving at multiple dates, simple ROI breaks down and IRR takes over; most spreadsheets calculate it with a single function.
Because the denominator gets shrunk. Spend $5,000 on ads, generate $15,000 in revenue, and the campaign will be announced as a 200% ROI, dividing revenue by spend. But revenue isn't return. If your gross margin is 60%, that $15,000 carries $6,000 of product and fulfillment cost, and the honest profit-based ROI is ($15,000 × 0.6 − $5,000) ÷ $5,000 = 80%. Still excellent! Just not the headline number.
Contractor quotes play the same game in reverse: a kitchen remodel "recouping 85% of cost" means resale value rose by most of the invoice, not that you made money. Whenever a percentage is being used to sell you something, find out what's in the numerator and what's been quietly left out of the denominator.
Adjust the risky one downward by its chance of failing, then compare. A venture with a 50% shot at a 40% return and a 50% shot at losing a third of your money has an expected ROI of about 3%: better than a mattress, worse than Treasuries, before you've paid for the stress. This is why diversification isn't timidity; it's the mechanism that makes the average return actually show up in your account. For longer horizons, compounding does the quiet work: the difference between 7% and 10% a year is a 2× versus a 2.6× outcome over a decade. Watch that gap compound with the compound interest calculator, and track whether the whole portfolio is actually growing with the net worth calculator.
A good ROI beats the passive alternative after honest accounting. Start from ~10% a year, add for risk, add for effort, subtract for fees, taxes, and your time, and always annualize before comparing. Run every impressive percentage through those filters and the good investments stand out quickly. Most of the rest were marketing.
US large-cap stocks have averaged roughly 10% a year in nominal terms, or about 6 to 7% after inflation, across the last century. Individual decades have ranged from slightly negative to over 15% annualized, so treat 10% as a long-run average rather than an expectation for any short window.
Yes. ROI of 100% means you ended with twice what you put in. The catch is time: doubling in 3 years is a 26% annual return, while doubling in 10 years is 7.2%. Always ask how long the money was deployed before being impressed by any total return.
Small-business returns are the premium you earn for illiquidity, effort, and concentration risk, so many operators target 15 to 30% a year to justify not simply indexing. A venture-style startup needs far higher upside on winners to pay for its failures, while a low-effort side business can clear 10% and still beat a passive alternative.
An honest one does. Investment returns are usually quoted after fund expense ratios but before taxes and your own trading costs; a personal ROI should add those back in, along with any labor you contributed at a realistic wage. Quoted ROIs that quietly exclude these are doing marketing, not math.
Simple ROI compares two totals: what went in, what came out. IRR handles situations with many cash flows at many dates, like a rental property collecting rent for years, and returns the annual rate that sets the project's net present value to zero. For a single deposit and a single withdrawal, IRR and annualized ROI give the same number.