ROI

There is no absolute number; it depends on the benchmark and the horizon. Long-term bank deposits yield roughly 1% to 2% a year, while major equity indices have historically returned about 7% to 10% nominal. A multi-year project annualising above 8% is therefore usually decent. Always weigh risk too, since high ROI often comes with volatility or leverage, so look at risk-adjusted measures such as the Sharpe ratio.

ROI looks only at the final total return, which suits a single investment with no intermediate cash flows. IRR accounts for the timing of every cash flow, so it fits staged contributions or interim income such as regular investing, rental income or corporate projects. Whenever cash flows are complex, IRR is the more accurate measure.

Three usual culprits: missed costs such as fees, taxes and currency losses; inflation, since nominal gains must be adjusted to show real purchasing power; and opportunity cost, what else that money could have earned. With leverage you must also deduct interest, which magnifies gains and losses alike.

The formula is unchanged and the result is negative. Cost 10,000 and proceeds 7,000 gives ROI = (7,000 − 10,000) ÷ 10,000 = −30%. Note the asymmetry: after a 30% loss you need roughly a 42.9% gain to return to your starting point, since 1 ÷ 0.7 − 1 ≈ 0.429. The deeper the drawdown, the harder the recovery, which is why limiting losses matters more than chasing gains.