Actual and Expected Return in Investing
Actual Return and Expected Return
Tap to watch our video about investment risks and returns, and read on for more details.
Actual return is the percentage gain or loss in value you can experience on a particular investment or in your entire investment portfolio. Another name for actual return is internal rate of return, or IRR.
Expected return relates to the percentage gain or loss in value of an investment that you anticipate to get before making the investment. The expected return generally relies on historical data and is merely a weighted average of historical returns on an investment over a period of time.
Investment risk means that there’s always a chance that the actual gain from an investment turns out different than expected. This uncertainty includes the possibility of losing some, or even all, of the original investment. Every saving and every investment product carries a chance of gains and losses.
Broadly speaking, investors are exposed to both systematic and unsystematic risks. Since any investment is subject to systematic and unsystematic risks, there are no guarantees you’ll get your expected return. In our further chapters, we'll take a closer look about systematic and unsystematic investment risks, and why they’re important for managing your investment strategy.