ROIReturn on Investment
Definition
ROI is the return on investment: net profit divided by the capital invested, as a percentage. It does not account for how long the investment lasted.
Return on investment (ROI) is the simplest measure of profitability: how much you earned relative to how much you put in.
Example: you deposited 80,000 into a portfolio that is worth 100,000 today. The gain is 20,000 and ROI is 25%. If you later withdraw 10,000, your net invested capital falls to 70,000 and the portfolio to 90,000. The gain is still 20,000, because withdrawing your own money is not a loss.
The gain should include everything you actually earned or paid: dividends, interest, commissions and taxes. An ROI based on share prices alone usually overstates the result.
Limitations of ROI
- It ignores time: 25% in one year and 25% in ten years is the same ROI. Use CAGR or an annualized rate to compare over time.
- With regular deposits it understates the result by treating every deposit as invested from day one. MWR is better there.
- It says nothing about the risk taken to achieve the result.
In practice, the ROI of a portfolio is the same as its simple return: the total gain divided by net deposits.
Total gain in FundStat
Below the Portfolio value, FundStat shows the total gain: the portfolio value minus net deposits, that is, deposits less withdrawals.
Related terms
All terms- Portfolio returnPortfolio return is the percentage result of your investments over a period. It can be simple, money-weighted (MWR) or time-weighted (TWR), cumulative or annual.
- CAGRCAGR is the compound annual growth rate: the constant yearly rate that turns a starting value into an ending value over a period. It ignores deposits and withdrawals.
- P&LP&L (profit and loss) is the result of your investments: the gain or loss in money. It splits into realized (after selling) and unrealized (on open positions).
- MWRMWR is a money-weighted rate of return: it accounts for the amount and date of every deposit and withdrawal, showing how fast the investor’s money grew.