Investors often quote their returns in absolute terms. For example, they might say they earned an 8% return on their portfolio. But if we’re really trying to measure the performance of an investment, then we need to understand absolute versus relative returns too.
In this publication, we’re going to explain the differences between absolute return, also known as total return, and relative return. As part of that explanation, we’ll first provide a definition of each term, as well as its calculation. Next, we’ll talk about why it’s important to consider both measures of an investment’s performance, and provide examples to illustrate this point. Finally, we’ll summarize the value of these two terms, and explain how they can be used by investors to evaluate the growth of their holdings.
In this publication, we’re going to explain the differences between absolute return, also known as total return, and relative return. As part of that explanation, we’ll first provide a definition of each term, as well as its calculation. Next, we’ll talk about why it’s important to consider both measures of an investment’s performance, and provide examples to illustrate this point. Finally, we’ll summarize the value of these two terms, and explain how they can be used by investors to evaluate the growth of their holdings.
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