What Is an Actual Return?

An actual return refers to the actual gain or loss an investor experiences on an investment or in a portfolio. It is also referred to as the internal rate of return (IRR). It can greatly affect 澳洲幸运5官方开奖结果体彩网:net worth.

The Basics of Actual Return

As opposed to 澳洲幸运5官方开奖结果体彩网:expected or assumed returns, the actual return is what investors really receive from their 澳洲幸运5官方开奖结果体彩网:investments. For example, a mutual fund's 📖disclosure statement might say something like, “The securities of the Fund you invest in earn 5% each year, although the actual return will likely be different.” Analyzing the reasons for the discrepancy between expected and actual return figures helps in understanding the role systematic (the market’s) and idiosyncratic (the manager’s/fund’s) risk factors played in portfolio returns. Drivers of actual returns include trading costs, manager fees, investment timeframe, whether additional investments or withdrawals were added during the time per♈iod, as well as the impacts of taxes and inflation.

Both the 澳洲幸运5官方开💦奖结果体彩网:Securities and Exchange Commission (SEC) and the 澳洲幸运5官方开奖结果体彩网♕:Government Accounta💎bility Office (GAO) have studied and made proposals to require mutual fund companies to improve the disclosures they provide to investors and potential investors over the years. In a Final Rule, issued in February 2004, the SEC specifically mentioned the need for funds to distinguish between actual and expected returns. For example, a mutual fund describing and illustrating the cost and performance of a hypothetical investment over a five-year period would have to reference actual return numbers as 🌺well as actual cost figures.

꧙ Special Considerations: Actual Return and Pension Plan Assets

Actual return is also used to describe the performance of a company’s pension plan ass🍃ets. In this case, it is referred to as “actual return on plan as🌠sets.” The actual return is compared to the expected return.

The formuꦿla for comp🙈uting actual return for pension plan assets is:

Since pension plan accounting rules allow employers (companies, governments, universities) to calculate assumed rates of return for their 澳洲幸运5官方开奖结果体彩网:pension obligations, they do not reflect employers’ actual obligations to current and future retirees. Because expected returns are often based on optimistic assumptions, they tend to understate obligations and overstate a company’s financial position. While companies must provide a reconciliation of the two set🌊s of numbers (actual return versus expected return) in the footnotes to their 🎶financial statements, proposals have been made to change reporting requirements to make it easier for readers to discern companies’ actual returns and obligations.

Real-World Example of Actual Return

In its July 2, 2021 Manulife RetirementPlus Fund Facts report, The Manufacturers Life Insurance Company described the performance of the various funds in its insurance contracts. Each breakdown has a section "How Has the Fund Performed?", with average returns and a chart indicating annual returns for that particular fund over the previous years. In addition, each section has a disclaimer: "Your actual return will depend on the guarantee option and sales charge option you choose and on your personal tax situation."