What’s a “good” rate of return?

There’s no single universal answer, since it depends on the type of investment, the level of risk involved, and the specific time period measured. A rate that would be considered excellent for a low-risk bond might be considered mediocre for a higher-risk stock investment, since the appropriate expectation differs by asset type and risk level.

Why does my rate of return look different depending on which currency I calculate it in?

This happens because currency movement between the two relevant currencies affects the converted value independently of the investment’s own performance in its original currency. Calculating rate of return in both currencies, and understanding the gap between them, shows exactly how much of the difference is due to currency movement versus the underlying investment itself.

Is the rate of return the same as the interest rate?

Not exactly. An interest rate is typically a fixed, stated rate for a specific product like a savings account or loan. Rate of return is a broader term that can apply to any investment, including ones with fluctuating values like stocks, and reflects actual performance over a period rather than a predetermined, contracted rate.

Does the rate of return account for fees and taxes automatically?

Not unless it’s explicitly calculated that way. A rate of return figure quoted by an investment provider often reflects gross performance, before fees and taxes are subtracted, which means the actual, take-home result can be meaningfully lower than the headline figure once these costs are factored in. Asking specifically whether a quoted rate of return is gross or net of fees, and calculating the tax impact separately based on the specific situation, gives a more honest sense of what would actually be kept.

Back to Glossary

Rate of return: the number that means less without currency context

Key takeaways
- Rate of return measures how much has been gained or lost on an investment relative to what was originally put in, expressed as a percentage.
- It can be reported as nominal (raw percentage change) or real (adjusted for inflation), and knowing which matters for an accurate comparison.
- An annualized rate of return smooths a multi-year result into a single yearly figure, generally more useful than a simple average for comparing periods.
- Converting foreign-currency rates of return to a single common currency is the only way to compare them accurately.
- A quoted rate of return often reflects gross performance before fees and taxes, which can make the actual take-home result meaningfully lower.

Rate of return measures how much has been gained or lost on an investment relative to what was originally put in. Here’s how to calculate it, and why currency matters for a cross-border comparison.

What is the rate of return?

Rate of return measures how much has been gained or lost on an investment relative to what was originally put in, expressed as a percentage. It’s a general term applicable to virtually any investment or financial decision, allowing comparison of very different kinds of investments, a stock, a bond, a piece of property, on a common, standardized basis.

How rate of return affects your investment decisions

To calculate a basic rate of return, subtract the original investment amount from the current value, add back any income received along the way such as dividends or interest, and divide the result by the original investment amount. According to FINRA⁠(opens in new window), it’s often best to compare investment performance by looking at the annualized return rather than a simple average, since dividing total return by the number of years produces an inflated figure that doesn’t account for compounding. This single calculation allows comparing an investment’s performance against another investment, against a savings account’s interest rate, or against a general benchmark like a market index, giving a consistent way to evaluate very different opportunities against one another.

Rate of return can be calculated over any time period, not just a year, and it’s worth being clear about which period a specific figure covers before comparing it against another. A rate of return covering five years looks very different from an annualized rate of return for that same period, since the annualized figure smooths the total return into an average yearly rate, which is generally the more useful figure for comparing investments held over different lengths of time.

Nominal versus real rate of return

Similar to annual return, rate of return can be reported as a nominal figure, the raw percentage change without adjusting for inflation, or as a real rate of return, which subtracts inflation’s effect to show the actual change in purchasing power an investment delivered. A nominal rate of return that looks impressive on paper can represent a much smaller, or even negative, real return during a period of significant inflation, which is why comparing real rates of return, particularly over a longer period, often gives a more meaningful sense of whether an investment genuinely built wealth or simply kept pace with rising prices.

Rate of return across borders

For someone comparing an investment opportunity in a current country of residence against one in a home country, rate of return calculated purely in each investment’s own local currency doesn’t tell the complete story unless currency movement between the two is also factored in. Understanding how to calculate and think about return on investment more broadly⁠(opens in new window) provides a useful foundation, since the same underlying principle, comparing gain against what was put in, applies whether evaluating a business investment, a piece of property, or a financial security, in any currency.

Currency risk note

When comparing rate of return across two different currencies, converting both figures to a single common currency before comparing is the only way to get an accurate, apples-to-apples picture, since a strong rate of return in a weakening currency can end up looking considerably less attractive, or even negative, once converted to a strengthening currency. This isn’t a flaw in either investment itself; it’s simply a factual consequence of currency movement operating independently of the underlying investment’s own performance, and it’s worth calculating explicitly rather than assuming a headline rate of return tells the whole story for a cross-border comparison.

A framework for comparing rates of return fairly

Confirm the time period each rate of return covers. A rate covering a different length of time isn’t directly comparable without annualizing both figures first.
Check whether a figure is nominal or inflation-adjusted. This matters considerably during periods of high or diverging inflation between two countries being compared.
Convert foreign-currency rates of return to a single common currency. This isolates the actual investment performance from the separate effect of currency movement.
Consider the risk taken to achieve a given rate of return. A higher rate of return achieved through a considerably riskier investment isn’t automatically a better choice than a lower, more stable one, depending on specific goals and risk tolerance.

Risk-adjusted rate of return

Beyond the basic percentage, more sophisticated comparisons sometimes adjust rate of return for the amount of risk taken to achieve it, since two investments with an identical rate of return haven’t necessarily delivered equally good outcomes if one involved considerably more volatility or uncertainty along the way. A risk-adjusted measure attempts to account for this, effectively asking how much return an investment delivered per unit of risk taken, rather than simply looking at the raw percentage gain. While calculating a formal risk-adjusted return involves more advanced statistics than most everyday investors need to perform themselves, understanding the underlying idea, that a smoother, more predictable path to a given return is generally preferable to an equally profitable but much more volatile one, is a useful mental model for comparing investment options beyond their headline rate of return alone.

Common questions about rate of return

What’s a “good” rate of return?

There’s no single universal answer, since it depends on the type of investment, the level of risk involved, and the specific time period measured. A rate that would be considered excellent for a low-risk bond might be considered mediocre for a higher-risk stock investment, since the appropriate expectation differs by asset type and risk level.
Why does my rate of return look different depending on which currency I calculate it in?

This happens because currency movement between the two relevant currencies affects the converted value independently of the investment’s own performance in its original currency. Calculating rate of return in both currencies, and understanding the gap between them, shows exactly how much of the difference is due to currency movement versus the underlying investment itself.
Is the rate of return the same as the interest rate?

Not exactly. An interest rate is typically a fixed, stated rate for a specific product like a savings account or loan. Rate of return is a broader term that can apply to any investment, including ones with fluctuating values like stocks, and reflects actual performance over a period rather than a predetermined, contracted rate.
Does the rate of return account for fees and taxes automatically?

Not unless it’s explicitly calculated that way. A rate of return figure quoted by an investment provider often reflects gross performance, before fees and taxes are subtracted, which means the actual, take-home result can be meaningfully lower than the headline figure once these costs are factored in. Asking specifically whether a quoted rate of return is gross or net of fees, and calculating the tax impact separately based on the specific situation, gives a more honest sense of what would actually be kept.

In Summary

Rate of return gives a consistent way to measure and compare investment performance, but for anyone comparing opportunities across more than one country and currency, converting to a common currency before comparing is essential for an accurate picture.

This publication is provided for general information purposes only and is not intended to cover all aspects of the topics discussed herein. This publication is not a substitute for seeking advice from an applicable specialist or professional. The content in this publication does not constitute legal, tax, or other professional advice from Remitly or any of its affiliates and should not be relied upon as such. While we strive to keep our posts up to date and accurate, we cannot represent, warrant, or otherwise guarantee that the content is accurate, complete, or up to date.