$$
\text{ROI} = \frac{\text{Net Profit}}{\text{Total Investment Cost}} \times 100
$$
$$
\text{Annualized ROI} = \left(\frac{\text{Final Value}}{\text{Initial Investment}}\right)^{\frac{1}{\text{Years}}} - 1
$$
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.