Harness Money

What is an absolute return?

An absolute return refers to the actual gain or loss of an investment over a given period of time, expressed as a percentage or a specific monetary amount. It measures the absolute performance of an investment, regardless of the performance of the overall market or benchmark indices.

Unlike relative returns, which compare the performance of an investment to a market index or other investments, absolute returns provide a standalone measure of how much the investment has grown or declined over a specific time period. It considers only the actual outcome of the investment, without considering external factors or comparisons to other investments.

For example, if an investor initially invests $10,000 in a fund and at the end of one year the investment is worth $12,000, the absolute return would be 20%. This means the investment has gained $2,000 or 20% of the initial investment amount, irrespective of how other investments or the market as a whole performed during that time.

Absolute returns are useful for assessing the actual performance of an investment and can be particularly important for investors who prioritize capital preservation or have specific return objectives. However, it’s important to consider other factors such as risk, volatility, and the time period over which the return is calculated to gain a comprehensive understanding of investment performance.