investing
Rate of Return
A rate of return (RoR) is the net gain or loss of an investment over a specified period, expressed as a percentage of the initial investment.
Formula
RoR = ((End Value − Start Value) ÷ Start Value) × 100 RoR = (Ending Value − Beginning Value + Income) ÷ Beginning Value × 100. If you invest $5,000 and it grows to $5,700 in one year, your return is 14%.
The real rate of return adjusts for inflation: a 7% nominal return during 3% inflation is roughly a 4% real return. Long-run real returns on broad equities average roughly 6–7% historically.
Compound annual growth rate (CAGR) is used for multi-year periods and is geometrically averaged — it tells you the steady annual return that would produce the same end result.
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Open calculator →Related terms
- Compound Interest
- Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. It causes savings and investments to grow exponentially over time.
- Annual Percentage Yield (APY)
- APY is the real rate of return on a savings account or investment after compounding is factored in for one year. A higher compounding frequency means APY > APR at the same nominal rate.
- Dollar-Cost Averaging (DCA)
- Dollar-cost averaging is an investment strategy where you invest a fixed dollar amount at regular intervals, regardless of price. It reduces the risk of investing a large sum at the wrong time.
Frequently asked questions
What is Rate of Return?
A rate of return (RoR) is the net gain or loss of an investment over a specified period, expressed as a percentage of the initial investment.
What is the Rate of Return formula?
The formula is: RoR = ((End Value − Start Value) ÷ Start Value) × 100