ABSOLUTE RETURN
Back to GlossaryDefinition
Investment performance measured as a raw gain or loss, without reference to a benchmark.
Summary
Absolute return is a straightforward way to measure investment performance by looking at the actual dollar amount or percentage gained or lost, without comparing it to any market index or benchmark. For example, if you invest $1,000 and it grows to $1,100, your absolute return is $100 or 10%. This differs from relative return, which compares your performance to a benchmark like the S&P 500. Absolute return tells you exactly how much money you made or lost, making it useful for understanding the real impact on your wealth.
Usage Context
Understanding absolute return is fundamental when evaluating investment performance, calculating taxes on gains/losses, setting investment goals, and comparing different investment options on their actual monetary impact.
Common Confusions
- Thinking absolute return is always better than relative return
- Confusing absolute return with risk-adjusted return
- Not understanding that absolute return doesn't account for market conditions
- Assuming positive absolute return means good performance regardless of context
