Simple Rate of Return Calculator
Determine the percentage gain or loss on your investment relative to its initial cost.
Simple Rate of Return (ROR)
0%
What is the Simple Rate of Return?
The Simple Rate of Return (ROR) is the net gain or loss of an investment over a specific time period, expressed as a percentage of the investment's initial cost. Unlike the Internal Rate of Return (IRR) or Compound Annual Growth Rate (CAGR), the simple ROR does not account for the length of time the investment was held.
The Simple Rate of Return Formula
To calculate the rate of return manually, you can use the following formula:
ROR = [(Current Value + Cash Flows – Initial Cost) / Initial Cost] x 100
Step-by-Step Calculation Example
Imagine you purchased shares of a company for $5,000. After one year, the shares are worth $5,600, and you received $200 in dividends during that time.
- Initial Cost: $5,000
- Ending Value: $5,600
- Cash Flow: $200
- Total Return: ($5,600 + $200) – $5,000 = $800
- Calculation: ($800 / $5,000) x 100 = 16%
In this scenario, your simple rate of return is 16%.
Key Considerations
While the simple rate of return is a quick way to gauge performance, it has limitations:
- Time-Blindness: A 10% return over 1 year is excellent, but a 10% return over 10 years is poor. This calculation doesn't show the difference.
- Inflation: It does not account for the purchasing power lost to inflation over the holding period.
- Taxes and Fees: For a "Real" rate of return, you should subtract trading commissions, management fees, and applicable capital gains taxes from your final value.