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Finance5 min read
ROI Isn't the Only Metric: How to Evaluate an Investment
Don't get excited by '20% annual return' just yet. Use an [ROI calculator](/finance/roi) to find the real return, and factor in time, risk, and opportunity cost.
ROI (return on investment) is (gain − cost) / cost. It's simple and intuitive, but it ignores the time your money is tied up.
Time makes the same ROI wildly different
Earning 20% in one year is nothing like 20% over five years. Use an ROI calculator to see the annualized figure and compare it with a risk-free return.
A high ROI with high volatility or a long lock-up may not beat a steadier, lower return. Weigh it against your risk tolerance, not just the headline number.