ROI Calculator

Understanding Return on Investment (ROI) in Canada

Return on investment is the most widely used measure for evaluating the profitability of an investment. The basic formula is straightforward: (Net Gain / Cost of Investment) × 100. However, comparing investments held for different time periods requires annualized ROI, also called compound annual growth rate (CAGR). A 50% total return over five years, for example, equates to only 8.45% annualized — a figure that can be meaningfully compared to a one-year GIC or a stock held for a decade.

Canadian investors should distinguish between nominal and real returns. Nominal ROI ignores inflation, while real ROI subtracts the inflation rate to show actual purchasing-power gains. With the Bank of Canada targeting 2% annual inflation, a nominal return of 7% delivers roughly 5% in real terms. Tax treatment also matters: returns inside a TFSA are completely tax-free, RRSP withdrawals are taxed as income, and non-registered capital gains are 50% taxable.

Historical Average Annual Returns by Asset Class (Canada)

When evaluating any investment, always factor in fees, taxes, and inflation. A mutual fund returning 8% with a 2.2% MER delivers only 5.8% before taxes and inflation. Index ETFs with MERs under 0.25% have become the preferred choice for cost-conscious Canadian investors seeking to maximize net ROI.