function calculateRateOfReturn() {
var initial = parseFloat(document.getElementById('rorInitialValue').value);
var final = parseFloat(document.getElementById('rorCurrentValue').value);
var years = parseFloat(document.getElementById('rorYears').value);
if (isNaN(initial) || isNaN(final) || initial 0) {
// Formula: ((Final / Initial)^(1 / Years) – 1) * 100
annualizedRoR = (Math.pow((final / initial), (1 / years)) – 1) * 100;
}
// Display results
document.getElementById('rorResultBox').style.display = 'block';
document.getElementById('rorProfitValue').innerText = profit.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('rorTotalPercent').innerText = totalRoR.toFixed(2) + '%';
if (!isNaN(years) && years > 0) {
document.getElementById('rorAnnualPercent').innerText = annualizedRoR.toFixed(2) + '%';
} else {
document.getElementById('rorAnnualPercent').innerText = 'N/A (Provide Years)';
}
}
Rate of Return: How to Calculate Your Investment Success
Understanding the rate of return (RoR) is fundamental for any investor. It allows you to measure the efficiency of an investment or compare the performance of different asset classes over time. Whether you are trading stocks, holding real estate, or investing in a small business, knowing how to calculate your return helps you make data-driven financial decisions.
What is Rate of Return (RoR)?
Rate of return is the net gain or loss of an investment over a specified time period, expressed as a percentage of the investment's initial cost. A positive RoR indicates a profit, while a negative RoR signifies a loss.
The Basic Rate of Return Formula
To calculate the basic percentage return (often called ROI), use the following formula:
While total return tells you how much you made in total, the annualized rate of return provides the geometric average amount of money earned by an investment each year over a given time period. This is crucial when comparing an investment held for 2 years against one held for 10 years.
Practical Examples
Scenario
Initial Cost
Final Value
Timeframe
Total RoR
Annualized RoR
Stock Investment
1,000
1,500
3 Years
50%
14.47%
Real Estate
200,000
280,000
5 Years
40%
6.96%
Savings Account
5,000
5,500
2 Years
10%
4.88%
Why Does Annualization Matter?
If you made a 50% return on Investment A in 2 years, and a 70% return on Investment B in 10 years, which performed better? By looking only at the total return, Investment B looks superior. However, Investment A has a much higher annualized return, meaning your capital was working much harder for you during those two years.
Key Factors Impacting Your Returns
Inflation: The "real" rate of return is your nominal return minus the inflation rate.
Taxes: Capital gains taxes can significantly reduce your net profit.
Fees: Brokerage commissions or management fees should be subtracted from the final value to get an accurate RoR.
Dividends/Interest: When calculating RoR, remember to add any dividends or interest received to your "Final Value."