What Are Risk-Adjusted Returns?

via Wall Street Journal

When you hear financial experts talk about risk-adjusted returns, what do they mean? It may sound complicated, but the concept is simple.

It means that when comparing investment returns like those from mutual funds, it can be misleading to just look at the headline figures. For instance, at first glance it might seem that a fund that gained 12% last year is better than one at 9%. In reality, it depends on how much risk was involved in generating those profits. The more risk, the less the returns are worth.

There are many ways to measure risk, but the simplest is to look at volatility..

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About thebenefitblog

Eric is a Producer at Lockton Insurance Brokers, Inc., the world’s largest privately held commercial broker. Eric has over 23 years of experience in the insurance industry and has spent the last 11 years with Lockton. Eric specializes in Health & Welfare Benefits, Retirement Planning, and Executive Benefits. Eric's clients utilize his expertise in the areas of Plan Due Diligence, Transaction Structure, Fiduciary Oversight, Investment Design, Compliance and Vendor negotiation to improve the operational & financial outcome for each client. The Benefit Blog is a place to share that expertise and industry news.
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