# Absolute Return

## What Is an Absolute Return?

An absolute return is a measure of the performance of an investment or portfolio that does not take into account any external factors such as inflation. It is calculated by subtracting the initial value from the final value and then dividing it by the initial value. This gives investors a clear indication of how much their investments have grown in terms of actual dollars, rather than just percentage points. Absolute returns are often used to compare different investments over time, since they provide an apples-to-apples comparison regardless of market conditions or other outside influences.

Absolute returns can be positive or negative depending on whether the investment has gained or lost money during its holding period. Positive absolute returns indicate that an investor has made money on their investment while negative absolute returns mean that they have lost money overall. Investors should always consider both types when evaluating potential investments so they can make informed decisions about where to put their capital for maximum gain with minimal risk.

## How to Calculate Absolute Return?

Absolute return is a measure of the total gain or loss on an investment over a given period. It can be calculated by subtracting the initial value of an investment from its final value and then dividing that number by the initial value. For example, if you invested \$100 in a stock and it ended up being worth \$120 at the end of one year, your absolute return would be 20%.

To calculate absolute return for multiple investments, add together all gains or losses to get a net result. Then divide this figure by the sum of all original investments to get your overall absolute return percentage. This calculation will give you an accurate picture of how well (or poorly) your portfolio has performed over time compared to other investments with similar risk profiles.

## What Is Annualized Return?

Annualized return is a measure of the average rate of return on an investment over a period of time, expressed as a percentage. It takes into account both the amount and timing of cash flows associated with an investment to calculate its total return for any given year. Annualized returns are used by investors to compare different investments or strategies in order to determine which one will provide them with the highest potential returns over time.

The annualized return calculation can be done using either simple or compound interest methods. The simple method calculates the total gain or loss from an investment during a single year, while the compound method factors in all gains and losses throughout multiple years when calculating overall performance. Investors should consider both types of calculations when evaluating their portfolio’s performance since they may yield different results depending on how long you have held your investments and what type of assets you own within it. Additionally, investors should also take into consideration other factors such as taxes, fees, inflation rates, market volatility and risk tolerance before making any decisions about their investments based solely on annualized returns alone.