Return On Investment (ROI) is a powerful tool for forecasting your earnings, creating investment plans, or shifting your wealth from one financial vehicle to another.

It gives you a measured representation of how much you can earn (or lose) if you choose to put your money into a certain type of asset. When it comes to crypto, this is essential because you could invest in thousands of coins.

They are all marketed as great investment options, but a great investment is a very subjective term.

Time is the most important thing people fail to account for when calculating ROI. ROI for a certain asset could be very high, but it could take a decade for those returns to materialize. Such an offering becomes less attractive than an option that offers a lower ROI but promises to return in a matter of weeks.

Let’s dig into how you can best calculate your potential returns.

**What Is ROI for Crypto?**

ROI is the percentage of growth or loss on your investment.

**How To Calculate It Manually**

The simple formula for calculating ROI is:

**ROI = (FVI – IVI)/IVI * 100**

Where:

FVI = Final Value of Investment

IVI = Initial Value of Investment

To illustrate this formula:

Say you bought 100 coins of a cryptocurrency when they were trading at $1 for a total initial investment value (IVI) of $100.

Later the price rose to $2 per coin, so your investment grew to $200.

Using the above formula would look like this:

($200-$100)/$100*100 = 100%

This means you got 100% of your investment back since you gained exactly $100 on an investment of $100 and now have a total of $200 in your account.

**Things To Consider When Calculating ROI Manually**

ROI is not based on the final amount you have in your account or the final value of the asset. Rather, it is based on how much you gained on your initial investment.

To calculate ROI properly, you need to subtract your initial investment from your total to understand how much you gained from the money you invested. The person who invested $100 and made $200 made a profit of $100. They did not gain $200.

The above equation is an extremely simplified version of the ROI formula. In a real-world setting, you would also need to account for various expenses incurred while making the investment and other variable costs that have directly or indirectly influenced how much you earned on your investment.

Perhaps the most important consideration is that this equation does not consider the time it took to earn this amount of money. No ROI calculation really considers the cost of time. However, if you manually calculate ROI for your portfolio, you can always factor in time at a price that you think represents the value of your time reasonably.

Another major factor to consider is the amount of risk involved in any kind of investment. When you see the ROI figures for a certain cryptocurrency or any asset, there is no way to tell how much risk is involved just by looking at the ROI figures.

In nearly all cases, higher ROI figures with higher levels of risk. In terms of cryptocurrency, this could mean volatility, market sentiment, real-world use, or other factors that an investor will want to know before putting money into that option.

Cryptocurrency assets are known for being highly volatile, and it is extremely challenging to predict their price behavior.

The risk is low for someone who invests in Bitcoin early, and when the price soars, the ROI will be incredible. However, the ROI won’t be as attractive for someone who invests when the price is higher, and the risk is considerably higher. The same asset can have a different level of risk and a different ROI at different points in time.

When calculating ROI or looking at ROI figures that are just percentages, you also need to consider how much the initial investment is or what is required to gain access to that asset class. In some cases, for instance, penny stocks, the entry price is quite low, and the ROI can be quite high, but it comes with the cost of high risk as well.

On the other hand, real estate has a very high entry price while the ROI is good and the risk is extremely low. In a way, for high-value items, you are paying for a lower level of risk and a more reliable and consistent ROI.

Some assets can take considerably more time to develop a good ROI than others. For instance, cryptocurrency can develop a very high ROI in weeks, whereas real estate can take years or even decades to develop a decent ROI.

**Using ROI Calculators**

When you have to calculate an ROI for an investment that you did in chunks for several years for an asset like a highly volatile cryptocurrency, it can get complicated.

While the math isn’t too challenging, just keeping track of all the variables can be a problem for some. Moreover, it’s also hard to account for all the variables, such as transaction and banking fees.

A better alternative is to use an ROI calculator. Many brokers and even wallets give you the option to calculate the ROI within the app, so you don’t have to worry about keeping track of price changes and other variables involved.

While these calculators are easy to use and quick to give you an answer, there is a probability of error.

Ideally, you should be doing a manual calculation of ROI on your cryptocurrency portfolio to have a rough estimate of where you are heading. You can also use the ROI calculators to give you a more in-depth picture of how a cryptocurrency is working out for you.

Alternatively, you could also hire an expert financial analyst to help you understand the ROI of your investment. While this will cost more, it will give you a better picture of your investments’ financial health.

**Annualized ROI **

To get a long-term perspective of how the ROI for an asset will change over time, you can use the annualized ROI.

For the annualized ROI, the formula is as follows:

**Annualized ROI = ((ROI)1/N-1)*100%**

Where ‘N’ is the number of years you are forecasting for.

Assuming that the previous example where the 100% ROI was for one year, we can use the same figures to see what it would look like over five years.

((100)1/ 5-1)*100% = 25%

The same asset that showed a 100% ROI for one year has an ROI of 25% when mapped out over 5 years.

The annualized ROI can help you understand how much you can earn if you invest long-term.

**Conclusion**

ROI helps understand the earning potential of an asset. Whether you are looking to make a short-term gain or need slow but steady long-term growth, the ROI figure will be helpful in understanding which option you should go for.

However, to get the best results, you need to ensure you are using the right formula and looking at the ROI figure from the right perspective.