Absolute Return Funds vs Relative Return Funds: Which Is Best for You?

The number one piece of financial advice is to save money for your retirement. Despite this, recent surveys show that about 22% of Americans didn’t make any contributions to their retirement funds in 2023. If you want to ensure you’re golden in your golden years, you have to take investment seriously!

One great way to invest your money is in a variety of different funds. Two common options are relative return and absolution return funds. Don’t stress if you’re not familiar with these money-makers.

Read on to brush up on these types of financial investments!

Absolute Return Funds 101

An absolute return fund investment is one where you measure your return purely based on the money you put in versus the money you got in return. You don’t compare it to any other types of investments. For example, if you invested in a mutual fund and the value went up 25%, that would be absolute value.

Investors who utilize this strategy are only interested in whether an investment is generating consistent positive returns. If this sounds like the right strategy to you, take the time necessary to learn about an absolute return fund that strikes your fancy.

Relative Return Funds

Relative return funds involve a different investment strategy. Instead of looking at the raw numbers, relative funds look at the performance of the fund in comparison to other investments on the market. This gives you insight into the overall performance of the fund. 

For example, if the fund in which you invest has a return of 5%, and another has a return of 25%, then your fund is underperforming. Looking at the performance of different funds helps you make informed decisions about your investments, including whether it’s worth paying higher fees or taking on more risk.

Which Is Right for You?

Different investors have different tolerance levels when it comes to their financial portfolios. Deciding whether you want to make an absolute return fund investment or a relative fund depends on your individual needs and goals. 

If you have a lot of time to let your investment sit and accrue returns, then an absolute return fund is a great way to go. It’s consistent and less risky. 

On the other hand, if you’re interested in a more ambitious investment, you may opt for relative funds that are generating larger returns. They may carry more risk, but they also tend to bring in more money. 

If you’re still at a loss about which direction to take, consider dabbling in both to see what feels right to you.

Are You Ready to Invest?

Deciding on an investment strategy is a critical part of planning for your future. That’s why it’s so important to understand the difference between relative funds and absolute return funds. If you have questions about which types of funds might work best for you, don’t hesitate to reach out to a financial advisor to build a solid plan! 

Building your personal investment portfolio is not an easy task. If you’re looking for a wealth of information that’ll help you bolster your financial investments, look no further! Check out the rest of our blog to tackle your personal finance inquiries!