What it is:
How it works/Example:
The actual return on an investment is the actual amount of money gained or lost during a period of time (e.g. a quarter or year) relative to the investment's initial value. For instance, the actual return on a stock purchased at $100 whose value at the end of one year is $120 is said to have a return of $120 - $100 = $20 or 20% ($20 / $100).
The formula for actual return is: (ending value - beginning value) / beginning value = actual return.
Actual return should not be confused with expected return, which is the projected return on an investment based on historic performance combined with predicted market trends.
Why it matters:
The disparity between the actual return and expected return on an investment provides an analytical framework in which to understand the reasons why an investment performed as it did, or why it performed differently than expected.