Calculate the Rate of Return on an Initial Investment

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Rate of Return (RoR) Calculator

Investment Summary

Total Profit/Loss:
Simple Rate of Return:
Annualized Return (CAGR):
function calculateRoR() { var initial = parseFloat(document.getElementById('initialInvestment').value); var final = parseFloat(document.getElementById('finalValue').value); var income = parseFloat(document.getElementById('dividends').value) || 0; var years = parseFloat(document.getElementById('investmentYears').value); if (isNaN(initial) || isNaN(final) || initial 0) { var cagr = (Math.pow((final + income) / initial, 1 / years) – 1) * 100; document.getElementById('annualizedRoR').innerText = cagr.toFixed(2) + '%'; } else { document.getElementById('annualizedRoR').innerText = 'N/A (Provide Years)'; } }

Understanding Rate of Return (RoR)

The Rate of Return (RoR) is the net gain or loss of an investment over a specified time period, expressed as a percentage of the investment's initial cost. It is the primary metric used by investors to evaluate the efficiency and profitability of various assets, including stocks, bonds, real estate, and mutual funds.

How the Calculation Works

This calculator uses two distinct methods to evaluate your performance:

  • Simple Rate of Return: This measures the total percentage increase or decrease from the starting point to the end point, including any dividends or interest earned.
  • Annualized Return (CAGR): This calculates the geometric progression ratio that provides a constant rate of return over the time period. It effectively tells you what your "average" yearly return was, accounting for compounding.

The Mathematical Formula

To calculate the basic RoR manually, use this formula:

RoR = [(Current Value + Income Received – Initial Investment) / Initial Investment] x 100

Example Calculation

Imagine you purchased shares in a technology company for $5,000. Over the course of 3 years, the value of the shares grew to $6,500, and you received $200 in cash dividends.

  1. Total Gain: ($6,500 + $200) – $5,000 = $1,700
  2. Simple RoR: ($1,700 / $5,000) * 100 = 34%
  3. Annualized RoR: Using the CAGR formula, your return would be approximately 10.25% per year.

Why Annualized Return Matters

A simple return of 50% might sound impressive, but its value depends heavily on time. A 50% return over 2 years is exceptional (approx. 22.5% annually), whereas a 50% return over 20 years is relatively poor (approx. 2.05% annually). Always use the annualized figure when comparing different investment opportunities to ensure a "level playing field."

Factors to Consider

While this calculator provides a "gross" rate of return, serious investors should also consider:

  • Inflation: If your RoR is 5% but inflation is 3%, your "real" rate of return is only 2%.
  • Taxes: Capital gains taxes can significantly reduce your net profit.
  • Fees: Brokerage commissions and management fees should be subtracted from your final value for an accurate result.

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