ROI: the total return
Return on investment is the gain divided by what you put in: ROI = (amount returned − amount invested) ÷ amount invested. Put in $10,000, get back $16,000, and the ROI is 60%. It says nothing about time, though: 60% over 2 years is far better than 60% over 10.
CAGR: the yearly growth rate
The compound annual growth rate is the steady yearly rate that would turn the starting value into the ending one: CAGR = (end ÷ start)1 ÷ years − 1. For $10,000 growing to $16,000 in 5 years, that is 1.60.2 − 1 = 9.86% a year, not the 12% you get by dividing 60% by 5, because growth compounds.
Why the average of yearly returns misleads
An investment that rises 50% one year and falls 50% the next has an average yearly return of 0%, yet $100 becomes $150 and then $75. The CAGR is −13.4% a year, which matches what actually happened to the money. Use CAGR to compare investments held for different lengths of time.
Dividends and average cost
- Dividend yield is the yearly dividend divided by the share price: $2 a year on a $50 share is 4%.
- Average cost is the total you paid divided by the shares you own, which is the figure to compare with today's price after buying at several prices.
The ROI Calculator, CAGR Calculator, Dividend Yield Calculator and Stock Average Cost Calculator do each of these.