$$
\text{ROI} = \frac{\text{Net Profit}}{\text{Total Investment Cost}} \times 100
$$
$$
\text{Annualized ROI} = \left(\frac{\text{Final Value}}{\text{Initial Investment}}\right)^{\frac{1}{\text{Years}}} - 1
$$
Basic ROI Examples
| Investment |
Cost |
Return |
Net Profit |
ROI |
Period |
Annualized |
| Stock portfolio |
$50,000 |
$75,000 |
$25,000 |
50% |
5 years |
8.4% |
| GIC |
$10,000 |
$11,400 |
$1,400 |
14% |
3 years |
4.5% |
| Rental property |
$100,000 (down payment) |
$150,000 (equity + income) |
$50,000 |
50% |
5 years |
8.4% |
| Business |
$25,000 |
$40,000 |
$15,000 |
60% |
2 years |
26.5% |
Real Estate ROI Calculation
Simple ROI
| Component |
Amount |
| Purchase price |
$500,000 |
| Down payment |
$100,000 |
| Closing costs |
$12,000 |
| Renovations |
$15,000 |
| Total investment |
$127,000 |
| Sale price (5 years later) |
$625,000 |
| Mortgage balance remaining |
$375,000 |
| Selling costs (5%) |
$31,250 |
| Net proceeds |
$218,750 |
| Net profit |
$91,750 |
| Total ROI |
72.2% |
| Annualized ROI |
11.5% |
Rental Property ROI (Cash-on-Cash)
| Component |
Monthly |
Annual |
| Rental income |
$2,200 |
$26,400 |
| Mortgage payment |
-$1,400 |
-$16,800 |
| Property tax |
-$250 |
-$3,000 |
| Insurance |
-$100 |
-$1,200 |
| Maintenance (5%) |
-$110 |
-$1,320 |
| Vacancy (5%) |
-$110 |
-$1,320 |
| Net cash flow |
$230 |
$2,760 |
| Down payment + closing costs |
|
$112,000 |
| Cash-on-cash return |
|
2.5% |
Cash-on-cash measures annual cash flow relative to cash invested. Total ROI also includes appreciation and mortgage paydown.
Stock Market ROI
| Investment |
10-Year Annualized Return |
$10,000 Becomes |
| S&P 500 (historical avg) |
~10% |
$25,937 |
| TSX Composite (historical avg) |
~7–8% |
$19,672–$21,589 |
| High-interest savings account |
~3% |
$13,439 |
| GIC ladder |
~4% |
$14,802 |
| Inflation |
~2–3% |
Purchasing power eroded |
ROI by Investment Type
| Investment |
Typical Annual ROI |
Risk Level |
Liquidity |
| HISA |
3–4.5% |
Very low |
Instant |
| GIC (1-year) |
3.5–4.5% |
Very low |
Locked until maturity |
| Bond ETF |
3–5% |
Low-moderate |
High |
| Balanced ETF (VBAL) |
5–7% |
Moderate |
High |
| Equity ETF (VEQT) |
7–10% |
Moderate-high |
High |
| Rental property |
5–12% (total return) |
Moderate-high |
Low |
| Individual stocks |
-100% to 100%+ |
High |
High |
| Starting a business |
-100% to 1000%+ |
Very high |
Very low |
Common ROI Mistakes
| Mistake |
Why It Matters |
Correct Approach |
| Ignoring fees and costs |
Commissions, MER, closing costs reduce real ROI |
Include ALL costs in calculation |
| Not annualizing |
50% over 10 years ≠ 50% over 2 years |
Always compare annualized returns |
| Ignoring taxes |
Pre-tax and after-tax ROI can differ significantly |
Calculate after-tax returns |
| Ignoring inflation |
7% nominal return with 3% inflation = 4% real return |
Use real (inflation-adjusted) returns |
| Comparing different time periods |
Bull market years inflate ROI |
Use long-term averages (10+ years) |
| Survivorship bias |
Only looking at winners |
Consider average investor returns |
After-Tax ROI in Canada
| Account |
Gross Return |
Tax Treatment |
After-Tax ROI (example) |
| TFSA |
7% |
Tax-free |
7.0% |
| RRSP |
7% |
Tax-deferred (taxed on withdrawal) |
~4.5–5.5% effective |
| Non-registered (capital gains) |
7% |
50% inclusion rate |
~5.5–6.0% |
| Non-registered (interest) |
4% |
Fully taxable |
~2.4–3.0% |
After-tax ROI depends on marginal tax rate. Example assumes ~30% marginal rate.