What investment has the best return on investment historically?

US small-cap stocks have historically delivered the highest average returns at 11-12% annually since 1926, followed by US large-cap stocks at 10-11%. However, these averages include years of 30-50% gains and 30-40% losses. For risk-adjusted returns, a diversified portfolio of stocks and bonds has provided more consistent returns. Real estate investment trusts (REITs) have also delivered strong returns of 9-11% with additional income. Past performance does not guarantee future results.

What is a good return on investment percentage?

A good ROI depends on the asset class and risk level. For stocks, 8-12% annually is strong. For bonds, 4-6% is good. For real estate, 8-12% (including income and appreciation) is solid. For options strategies, 15-25% on committed capital is achievable. Any return that beats inflation (2-3%) and its benchmark is technically good. Most financial planners consider a 7-10% annualized return over long periods as excellent for a balanced portfolio.

How do I calculate ROI on rental property?

Rental property ROI (also called cash-on-cash return) = Annual Net Income / Total Cash Invested. If you invest $60,000 (down payment + closing costs) on a property that generates $7,200 in annual net rental income (after expenses, taxes, insurance), your cash-on-cash return is 12%. Total ROI also includes property appreciation: if the property appreciates 3% on its $300,000 value ($9,000), total return is ($7,200 + $9,000) / $60,000 = 27%. Leverage amplifies both gains and losses in real estate.

Is 7% a good return on investment?

A 7% return is solid for most investment portfolios. It exceeds the long-term inflation rate of 2-3%, providing real wealth growth of 4-5%. At 7%, your money doubles every 10.3 years (Rule of 72). A balanced 60/40 stock/bond portfolio has historically returned approximately 7-8% annually. While pure stock indices have averaged higher (10-11%), a 7% return with lower volatility and drawdowns is often preferable for most investors, especially those closer to retirement.

How do fees impact my return on investment over time?

Fees compound against you dramatically over time. A $100,000 investment earning 8% gross returns over 30 years grows to $1,006,266 with 0.10% annual fees, but only $761,225 with 1% fees and $574,349 with 2% fees. That 1% difference costs $245,041 over 30 years. This is why low-cost index funds (0.03-0.10% expense ratios) consistently outperform actively managed funds (0.50-1.50% expense ratios) over long periods. Every basis point in fees you save compounds in your favor.

Best Return on Investment Calculator

Compare returns across investment types including stocks, bonds, real estate, and options. Calculate total ROI, annualized returns, and risk-adjusted performance.

Written by Sarah Chen, CFP

Certified Financial Planner

Fact-checked by Dr. James Wilson, PhD

Options Strategy Researcher

Published: March 27, 2026Income StrategiesFact-Checked

Input Values

Initial Investment

Starting investment amount.

Final/Current Value

Current or projected final value of the investment.

Total Income Received

Total dividends, interest, rent, or other income received.

Holding Period (Years)

How long you held or plan to hold the investment.

Total Costs & Fees

All costs including commissions, management fees, taxes.

Inflation Rate

Average annual inflation rate during holding period.

What Is Return on Investment (ROI)?

Return on Investment (ROI) measures the profitability of an investment relative to its cost. It is the most widely used metric for comparing investment performance across different asset classes. ROI accounts for both capital appreciation (the increase in value) and income received (dividends, interest, rent). Understanding ROI helps you make informed decisions about where to allocate your money for maximum growth.

While simple ROI gives you a total return figure, annualized ROI is more useful for comparing investments held for different time periods. An investment that returns 50% over 5 years is not directly comparable to one returning 30% over 2 years without annualizing. Real ROI (adjusted for inflation) tells you the actual increase in your purchasing power, which is the truest measure of investment success.

ROI vs. Annualized Return

A $10,000 investment that grows to $15,000 over 5 years has a 50% total ROI but only an 8.45% annualized return. Always compare annualized returns when evaluating investments held for different periods.

How to Calculate ROI

Total ROI

Total ROI = [(Final Value + Income - Costs - Initial Investment) / Initial Investment] x 100%

Where:

Final Value = Current or ending value of the investment

Income = All dividends, interest, or income received

Costs = Fees, commissions, taxes paid

Initial Investment = Original amount invested

Annualized ROI (CAGR)

Annualized ROI = [(1 + Total ROI)^(1/Years) - 1] x 100%

Where:

Total ROI = Total return as a decimal

Years = Holding period in years

Real Return (Inflation-Adjusted)

Real Return = [(1 + Nominal Return) / (1 + Inflation Rate)] - 1

Where:

Nominal Return = Annualized return before inflation adjustment

Inflation Rate = Average annual inflation rate

ROI Calculation Example

Given

Initial Investment

$50,000

Current Value

$72,500

Total Income

$8,500

Holding Period

5 years

Costs & Fees

$750

Inflation

2.5%/year

Calculation Steps

1Net profit = $72,500 + $8,500 - $750 - $50,000 = $30,250
2Total ROI = $30,250 / $50,000 = 60.5%
3Annualized ROI = (1.605)^(1/5) - 1 = 9.92%
4Income component = $8,500 / $50,000 = 17.0%
5Capital gain component = $22,500 / $50,000 = 45.0%
6Real return = (1.0992 / 1.025) - 1 = 7.24%

Result

This investment generated a 60.5% total return (9.92% annualized), with 17% from income and 45% from capital gains. After adjusting for 2.5% inflation, the real return is 7.24% annually.

ROI by Investment Type (Historical Averages)

Historical Average Annual Returns by Asset Class
Investment Type	Avg. Annual Return	Avg. Income Yield	Risk Level	Inflation-Adjusted
US Large-Cap Stocks	10-11%	1.5-2%	Moderate-High	7-8%
US Small-Cap Stocks	11-12%	1-1.5%	High	8-9%
International Stocks	8-9%	2-3%	High	5-6%
US Bonds (Aggregate)	5-6%	3-4%	Low-Moderate	2-3%
Real Estate (REITs)	9-11%	3-5%	Moderate	6-8%
Gold	7-8%	0%	Moderate	4-5%
Cash/Savings	3-4%	3-4%	Very Low	0-1%
Covered Call Strategy	8-12%	6-10%	Moderate	5-9%

Maximizing Your Return on Investment

ROI Optimization Strategies

Minimize Fees and Costs

Investment fees compound against you just as returns compound for you. A 1% annual fee reduces a $100,000 portfolio by over $28,000 over 20 years compared to a 0.10% fee. Use low-cost index funds and ETFs with expense ratios below 0.20%.

Tax-Efficient Investing

Hold investments for over 1 year to qualify for long-term capital gains rates (0-20% vs. 10-37% for short-term). Use tax-loss harvesting to offset gains. Maximize tax-advantaged accounts (IRA, 401k, RRSP, TFSA).

Diversify Across Asset Classes

Diversification does not just reduce risk; it can improve returns by capturing gains across different market cycles. A portfolio of 60% stocks, 30% bonds, 10% alternatives has historically provided 80-90% of equity returns with 40-50% less volatility.

Reinvest All Income

Reinvesting dividends and interest compounds your returns dramatically. The S&P 500 returned approximately 10.7% annually from 1926-2023 with dividends reinvested, but only 6.4% from price appreciation alone.

Stay Invested Through Market Cycles

Missing just the 10 best trading days over 20 years can cut your total return in half. Time in the market consistently outperforms market timing. Dollar-cost averaging through downturns often produces the best long-term results.

Beware of Survivorship Bias

Historical return data often excludes failed investments. Not every stock returns 10% annually; many go to zero. Diversification through index funds eliminates this risk by spreading your investment across hundreds or thousands of companies.

Best Return on Investment Calculator

Input Values

Results

What Is Return on Investment (ROI)?

How to Calculate ROI

ROI by Investment Type (Historical Averages)

Maximizing Your Return on Investment

ROI Optimization Strategies

Frequently Asked Questions

Sources & References

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