The Difference Between ROI and Annualized Return

Return on Investment (ROI) and Annualized Return are two different ways to measure performance.

Total ROI

ROI simply measures the total growth of an investment from start to finish. If you invest $100 and it grows to $150 over 5 years, your ROI is 50%.

Annualized Return

Annualized return tells you what the equivalent yearly return would be to achieve that total ROI. In the example above, the annualized return is roughly 8.45%, not 10% (50% / 5), due to compounding.