Return is the central metric of every investment. But not all returns are equal: nominal, real, gross, net, simple, annualized — confusing these means comparing apples to oranges. This article explains the different types of investment return, how to calculate them, and what to watch for when comparing ETFs, savings accounts and real estate. Use our free ROI calculator to calculate your own investment return instantly.
What Is Investment Return?
Return measures the profit of an investment relative to the capital invested. The simplest form:
Return (%) = (Profit ÷ Capital Invested) × 100Invest $10,000 and get back $10,500 after one year — that's a 5% return. Simple enough. But for multi-year investments, different payout schedules and varying cost structures, this basic formula falls short.
Simple Return vs. CAGR
Simple return (also called total return) shows the percentage gain over the entire period:
Simple Return = (End Value − Start Value) ÷ Start Value × 100Example: Simple Return
Purchase: $10,000 · Sale after 5 years: $14,000
Simple Return = (14,000 − 10,000) ÷ 10,000 × 100 = 40%
40% sounds impressive — but over what time period? Simple return ignores the time factor. That's why multi-year investments use CAGR (Compound Annual Growth Rate):
CAGR = (End Value ÷ Start Value)^(1/n) − 1Example: Calculating CAGR
Purchase: $10,000 · Sale after 5 years: $14,000
CAGR = (14,000 ÷ 10,000)^(1/5) − 1 = 1.4^0.2 − 1 = 6.96% p.a.
CAGR is the fair comparison metric between investments with different holding periods. An ETF with 40% total return over 5 years (CAGR: 6.96%) is less profitable than a fixed deposit with 25% over 3 years (CAGR: 7.72%).
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Open ROI CalculatorNominal Return vs. Real Return
Nominal return is the return before adjusting for inflation. It's what appears on your statement. Real return shows how much purchasing power you actually gained:
Real Return ≈ Nominal Return − Inflation RateThe exact formula (Fisher equation):
Real Return = (1 + Nominal Return) ÷ (1 + Inflation Rate) − 1| Investment | Nominal Return | Inflation (2.5%) | Real Return |
|---|---|---|---|
| Savings account | 3.0% | 2.5% | 0.5% |
| Government bonds | 3.5% | 2.5% | 1.0% |
| MSCI World ETF (average) | 8.0% | 2.5% | 5.4% |
| Real estate (owner-occupied) | 3.0% | 2.5% | 0.5% |
When interest rates are low, real return can turn negative. A savings account at 1.5% with 2.5% inflation means you're losing 1% purchasing power every year. Use the inflation calculator to see the effect over any time period.
Gross Return vs. Net Return
Gross return is the return before taxes and fees. Net return is what remains after all deductions:
Net Return = Gross Return − Fees − TaxesTypical costs that reduce your return:
- ETFs: TER (0.1–0.5%), possible custody fees, capital gains tax
- Savings accounts: No fees, but full taxation on interest
- Real estate: Transaction costs (5–12%), maintenance (1–2% p.a.), management
Example: Gross vs. Net for an ETF
Gross return: 8.0% p.a.
TER: −0.2%
Return after fees: 7.8%
Capital gains tax (varies by country): −1.5%
Net return: approx. 6.3% p.a.
Comparing Returns Across Asset Classes
A fair comparison uses CAGR after fees and inflation. Here's an overview of typical returns:
| Asset Class | Typical CAGR (nominal) | Real Return (after 2.5% inflation) | Risk |
|---|---|---|---|
| Savings account (2026) | 2.5–3.5% | 0–1% | Very low |
| Fixed deposit (1–3 years) | 3.0–4.0% | 0.5–1.5% | Low |
| Government bonds | 3.0–3.5% | 0.5–1.0% | Low |
| MSCI World ETF | 7–9% | 4.5–6.5% | Medium–High |
| Rental real estate | 3–6% | 0.5–3.5% | Medium |
| Individual stocks | 0–15+% | Highly variable | High |
Higher return always means higher risk. A savings account protects capital but barely beats inflation. A diversified ETF savings plan delivers the best long-term real return — with significantly more volatility. Use the ETF savings plan calculator to project your expected wealth growth.
Calculating Returns: Three Practical Examples
Example 1: ETF Investment
You buy an MSCI World ETF for $15,000. After 10 years it's worth $32,000.
CAGR = (32,000 ÷ 15,000)^(1/10) − 1 = 7.87% p.a.
After fees (TER 0.2%) and taxes (approx. 1.4%): net return approx. 6.27% p.a.
Example 2: Savings Account
You park $20,000 in a savings account at 3.0% interest for 3 years.
End value: 20,000 × 1.03³ = $21,855
Gross return: 9.27% total (CAGR: 3.0%). After taxes: CAGR approx. 2.21%. Real return at 2.5% inflation: −0.29%.
Example 3: Rental Property
Purchase price: $200,000 (plus 10% closing costs = $220,000 total investment). Rental income: $8,400 p.a. Running costs: $3,000 p.a. Appreciation: 2% p.a.
Net rental yield: (8,400 − 3,000) ÷ 220,000 = 2.45% p.a.
Plus appreciation: 2.45% + 2.0% = approx. 4.45% total return p.a.
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Enter start value, end value and time period — the calculator shows simple return, CAGR and real return.
Open ROI CalculatorCommon Mistakes When Calculating Returns
1. Comparing apples to oranges
Comparing the total return of a 10-year ETF with the annual interest rate of a savings account compares time periods — not investments. Always use CAGR.
2. Ignoring fees
A fund with 8% gross return and 1.5% TER beats an ETF with 7.5% and 0.2% TER? No. After fees: fund 6.5%, ETF 7.3%. Over 20 years with $50,000 starting capital, that's over $15,000 difference.
3. Forgetting inflation
3% savings interest with 2.5% inflation isn't a 3% gain — it's 0.5% real growth. At higher inflation, the real return turns negative.
4. Survivorship bias
Historical stock returns only include companies that survived. Failed companies disappeared from indices. That's why broad diversification via ETFs is safer than individual stocks.
Conclusion
Calculating investment return means more than dividing profit by capital. To compare investments fairly, you need CAGR instead of total return, real return instead of nominal return, and net return instead of gross return. Only then can you truly compare ETFs, savings accounts and real estate.
The fastest way: enter your start and end values into the ROI calculator and see all key metrics at a glance.
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Start value, end value, time period — the calculator shows simple return, CAGR and real return.
Open ROI CalculatorMore useful calculators: Compound Interest Calculator · Savings Plan Calculator · Inflation Calculator