Lesson 9 of 10 · All lessons in this module
- What an interest rate is made of
- Holding period return
- Arithmetic and geometric mean returns
- Harmonic, trimmed and winsorized means
- Money-weighted return
- Time-weighted vs money-weighted returnVideo lesson
- Integrated cases: balance tables, money-weighted and time-weighted returns
- Annualised and continuously compounded returnsVideo lesson
- Gross, net, after-tax, real and leveraged returnsVideo lesson
- Integrated cases: from total return to what the investor keeps
Lesson 9 of 10 · 14 min
Gross, net, after-tax, real and leveraged returns
Peel a headline return down to what the investor keeps after fees, taxes and inflation, and remember that leverage magnifies whatever is left, both up and down.
In short
- Gross return: after trading costs, before management and administrative expenses; it reflects manager skill.
- Net return: gross minus management and administrative expenses; what the fund earned for the investor.
- Returns are pre-tax nominal unless stated. After-tax returns deduct taxes on income and realised gains; taxable investors judge managers on them.
- Real return: . After-tax real return: tax first, then inflation.
- Leveraged return : borrowing helps only if ; futures margin multiplies returns both ways.
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