What ROI and CAGR each answer
ROI answers "how much did this investment return in total" — the cumulative return over the whole holding period, ignoring duration.
CAGR answers "what is that per year" — assuming returns compound evenly, so investments of different lengths can be compared on one scale.
Formulas
(final value − initial investment) ÷ initial investment × 100%(final value ÷ initial investment)^(1 ÷ years) − 1Worked example (recompute it yourself)
Invest 1,000 USDT; two years later it is worth 1,960 USDT.
ROI = (1,960 − 1,000) ÷ 1,000 × 100% = 96%.
CAGR = (1,960 ÷ 1,000)^(1 ÷ 2) − 1 = 1.4 − 1 = 40%.
So a 96% total return over two years is 40% per year compounded — not 96% ÷ 2 = 48%.
Common pitfalls
Dividing total return by years: only valid under simple interest and it understates long-horizon compounding.
Comparing ROI across different durations: 100% over five years is not the same as 100% over one year.
Inconsistent fee treatment: decide whether fees are inside the initial investment and final value, and apply the same rule everywhere.
FAQ
Is ROI the same as return?
Yes. ROI (Return on Investment) is the total return: net profit divided by initial investment.
Why not just divide total return by years?
Because compounding rolls period by period. 1.4 × 1.4 = 1.96, so 40% a year reproduces the 96% total.
How do I annualise a holding period under a year?
Enter years as a decimal — six months is 0.5. The annualised figure is a conversion convention, not a repeatable promise.