Return on investment (ROI) measures how much profit you made relative to what you put in. But what counts as a "good" ROI? The answer depends entirely on the type of investment, the time period, and the risk involved.
Key insight: There's no universal "good ROI." A 10% annual return is excellent for a stock portfolio, mediocre for a startup, and terrible for a day trader. Context is everything.
A higher ROI is only better if the risk is proportionate. A 30% return from a volatile crypto asset isn't necessarily better than a 10% return from a diversified index fund — because the crypto investment could just as easily have returned -50%.
Investors use a concept called risk-adjusted return to compare investments fairly. The Sharpe ratio is the most common metric: it measures how much return you get per unit of risk taken.
ROI tells you total return over a period. CAGR (Compound Annual Growth Rate) tells you the annualized equivalent. For comparing investments held for different lengths of time, CAGR is more useful.
For example, a 50% ROI over 10 years sounds impressive — but it's only 4.1% per year (CAGR), which is below the historical stock market average.
For rental properties, most investors target a cash-on-cash return of 8%–12% annually. Combined with appreciation, total ROI often reaches 15%–20% in strong markets. Location, leverage, and management costs significantly affect the final number.
Small businesses typically aim for 15%–30% annual ROI, reflecting the higher risk and effort involved compared to passive investments. Businesses with lower risk and more predictable income (like franchises) tend toward the lower end; high-growth startups aim much higher.
Use our free ROI calculator to find your total return, annualized return, and net profit for any investment.
Try the ROI Calculator