Absolute return is simply the return on a particular asset, portfolio or investment. The return that an asset achieves over a certain period of time. This measure looks at the appreciation or depreciation (expressed as a percentage) that an asset – usually a stock or a mutual fund – achieves over a given period of time.<\/p>\n
Relative return is the difference between the absolute return and a market, index or alternative investment. The return that an asset achieves over a period of time compared to a benchmark.<\/p>\n
Absolute return differs from relative return because it is concerned with the return of a particular asset and does not compare it to any other measure or benchmark.<\/p>\n
Why is it important to distinguish between absolute and relative returns? The answer is that investments do not exist in a vacuum; a return on investment means nothing if it is not compared to an alternative. For example, a mutual fund manager may promise a 10% absolute return, but if the S&P 500 appreciates at rate of 15%, then that fund manager is not so hot. You could just as easily (and for less expense) invest in a passive S&P 500 tracking stock that mimics the S&P 500 stock index and outperform the mutual fund by 5%.<\/p>\n
Relative return provides a context for a promise by any money manager. Sure it is great for a portfolio to return a high percentage, but what is the greater market achieving? It is only worthwhile to put your money in the hands of a manager who can achieve a greater return than the market, otherwise what are you paying him for?!<\/p>\n","protected":false},"excerpt":{"rendered":"
Absolute return is simply the return on a particular asset, portfolio or investment. The return that an asset achieves over a certain period of time. This measure looks at the appreciation or depreciation (expressed as a percentage) that an asset – usually a stock or a mutual fund – achieves over a given period of […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","footnotes":""},"categories":[1],"tags":[2642,2641,977,1234,2644,2643,2645,857,918,917,1529],"class_list":{"0":"post-815","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-general","7":"tag-absolute-return","8":"tag-absolute-vs-relative-return","9":"tag-fundamental-analysis","10":"tag-portfolio","11":"tag-portfolio-investment","12":"tag-relative-return","13":"tag-return-on-an-asset","14":"tag-shares","15":"tag-stock-market","16":"tag-stocks","17":"tag-technical-analysis","18":"entry"},"_links":{"self":[{"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/posts\/815","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/comments?post=815"}],"version-history":[{"count":0,"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/posts\/815\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/media?parent=815"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/categories?post=815"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/tags?post=815"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}