Glossary · from the DESK dictionary
Return
The result of an investment relative to the capital employed, usually as a percentage per period.
In plain words
What comes out at the end, measured against what went in.
In more detail
Three distinctions decide whether two return figures are comparable at all. First gross or net: before or after costs, taxes and inflation — worlds can lie between six per cent nominal and the real return after everything. Second the time reference: a figure without a period is meaningless, and twenty per cent over ten years is something quite different from twenty per cent a year. Third the method: the geometric mean return is always lower than the arithmetic one when returns vary, and only the former describes what ends up in the account. Anyone not supplying these three has not stated a return but a number.
Example
Plus fifty per cent, then minus fifty per cent: arithmetically zero, in fact a quarter of the capital gone.
What it means for traders
The measure every investment is judged by — and the one most easily flattered by choice of method.
Common pitfalls
Return without its accompanying risk is not information. A higher return at twice the volatility is not a better investment, merely a different one.
Related terms
Current Yield · Return on Investment (ROI) · Risk · Sharpe Ratio
From the DESK dictionary. For information only, not investment advice.
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