Return on Investment (ROI) measures the efficiency of an investment as a percentage gain or loss relative to cost. It is used to compare profitability across different investments, regardless of size.
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Pro Tip
Always compare annualized ROI when investments have different durations. A 50% return over 10 years is actually only 4.1% per year — less impressive than a 3-year 30% return (9.1%/yr).
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Did You Know?
Warren Buffett has achieved an annualized ROI of roughly 20% over 55+ years — turning $10,000 into over $270 million. The S&P 500 over the same period returned about 10% annually.
References
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