There are a wide range of investment instruments available in the marketplace, ranging from simple assets such as collectibles to sophisticated investment products such as exchange-traded funds. Calculating investment performance is crucial to determining whether your current or potential investments perform better than other alternatives. Technically speaking, any return on an investment above zero is desirable; analyzing investments' performance gains relevance when comparing them against each other. Although each type of investment has specialized metrics and analytical tools, several methods of calculating investment performance can be applied across the spectrum.

#### Step 1

Analyze the investment's return-on-investment (ROI) ratio. ROI is one of many ratios used to analyze stock investments, but it is useful for other types of investment, such as real estate, as well. ROI compares the gains brought in by an investment to the original cost of the investment. Generally, any ROI above zero is a good thing, since a positive ROI indicates profitability. Examine ROI in terms of the average ROI of the investment type you are considering to get a better idea of whether a specific investment is performing above par. According to wealtheffect.com, for example, stock investments earn an average of 13 percent annually over the last 50 years; any stock investment that matches or exceeds that level over the long run is a solid investment. Use the following formula to calculate return-on-investment: ROI = ( ( gains – cost ) / cost ) As an example, if you spend $1000 on 100 shares of stock today, then sell all 100 shares for a total of $1250, you will have earned an ROI of 25 percent. Compare the annual average mentioned above, this would be a high-performing investment.

#### Step 2

Analyze the compound annual growth rate (CAGR) of the investment. CAGR is useful for investments with compounding interest structures. If interest compounds on top of an investment's principal balance, simply multiplying the interest rate by the principal and number of interest-accumulating periods will not provide an adequate picture of how much an investment is actually earning. CAGR offers an alternative to actually calculating the new principal balances of each compounding period. As with ROI, CAGR is most useful when compared against other investment alternatives. Use the following formula to calculate CAGR at a specified period of time: CAGR = ( (current value of investment / beginning value) ^ (1 – number of years thus far) ) - 1 For example, when comparing two stock holdings, one that you've held for five years and another that you've held for one year, comparing CAGR between the two will show you which investment has provided a higher yield over time. If one stock holding has risen from $1,000 to $1,250 in five years, and the other has risen from $300 to $500 in one year, the CAGR of the first would nearly five percent, while the CAGR of the second would be close to 67 percent. Clearly, the first stock has performed better in a shorter period of time.

#### Step 3

Analyze long-term trends in value appreciation or decline. Create a chart using spreadsheet software to visualize the trend in the value of your investment. If you are investing in stocks and bonds, take advantage of the many charts available online. Charts can show you whether an investment experiences steady, reliable growth, wild and unpredictable swings or relatively stable returns over time.

#### Step 4

Compare value trends and ratios to similar investment instruments. The metrics mentioned above: ROI, CAGR and long-term trends, are most significant when compared to similar investments. The ROI of a particular real estate investment, for example, is best understood when compared to other real estate plays. Trends in a technology company's stock, as another example, are best understood when compared to other technology companies.

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