Return is an important concept for anyone who invests. It is a measure of how much your investment has increased or decreased in value over a given period. Returns can be positive or negative and are dependent on several factors, including the type of investment, time horizon and risk, but also the benchmark against which you measure your investment.
In this article, we will take a closer look at investment returns. We will define return and review different types of investments and their pros and cons, including return and risk.
Return: Definition and calculation
Return is typically defined as the percentage change in the value of an investment over a given period. It is often expressed as a percentage growth or as a percentage increase over the original investment.
For example, if you invest DKK 10,000 in a share and after one year the value of the share has increased to DKK 11,000, your return is 10% for that year.
There are different ways of calculating returns, which can depend on the type of investment and what inputs are included in the return, such as costs, taxes, etc.
Therefore, if you want to compare returns across investment types and investment providers, you must pay attention to whether the stated returns are calculated on the same basis and include the same inputs.
The return on the investment is also dependent on several other factors, including
Advantages and disadvantages of different investments
Different types of investments have different advantages and disadvantages when it comes to returns. Here is an overview of some of the most well-known types of investments:
Stocks
Stocks are one of the most popular types of investments. Stocks offer the opportunity to invest and gain ownership in companies and participate in their growth. Stocks typically have a high return potential, but also a high risk. However, this also depends on the type of stock.
Benefits:
Disadvantages:
Bonds
Bonds are a type of loan that you as an investor make to a company in the case of corporate bonds or a government in the case of government bonds. Bonds often offer a lower return than shares, but also a lower risk.
Advantages:
Disadvantages:
Real estate
Real estate is another popular form of investment that falls under alternative investments. Real estate can offer high returns but also high risk, depending on the type of real estate investment, which ranges from developing new properties to investing in completed operating properties.
Pros:
Disadvantages:
Learn more about real estate investments here.
Alternative investments
Alternative investments are defined as alternatives to the traditional listed investments of stocks and bonds. Alternative investments can include investments in real estate, infrastructure, forestry, commodities, venture capital funds and a wide range of other assets. They can have high return potential and diversification benefits, but also high risk and complexity for private investors.
Benefits:
Disadvantages:
If you would like to learn more about alternative investments, you can read more here:
The Selected Alternatives Fund is an alternative investment fund that includes investments in solar energy, wind energy, green infrastructure, and real estate. Learn more about the investment fund here.
The fund’s risk classification is 6 out of 7 according to the fund’s Key Information Document (KID), which can be accessed here.
At Selected Group, our goal is to provide private investors with access to the same alternative investment opportunities as institutional investors, offering the same potential for risk-adjusted returns.