A worked example
$5,000 invested that grows to $8,000 over 3 years is a 60% total return — but annualized, that's about 17% a year, which is the number to compare against other opportunities held for different lengths of time.
Frequently asked questions
Why do I need an annualized figure if I already have total ROI?
A 50% total return sounds identical whether it took 1 year or 10 — but those are wildly different outcomes. Annualizing converts any return into a comparable yearly rate, the only fair way to compare investments held for different periods.
Does ROI account for risk?
No — ROI only measures the size of the gain relative to cost, not how much risk was taken to get there. Two investments with identical ROI can have very different risk profiles.
This calculator provides estimates for general informational purposes only and is not financial advice.