“real” versus “relative” return: does this really relate to you?
Investment managers will frequently report their performance to you by comparing their returns to a benchmark or set of benchmarks. For example,
Perhaps, since he or she did beat the benchmark. Nevertheless, you experienced a significant reduction in account value. So we ask the question: If my account is losing value, am I happy that I beat the benchmark? When markets are rising, investors tend to focus on relative returns. In falling markets, however, real returns are much more critical. Psychology tells us that human beings are affected much more by loss then gain. In uncertain times such as these, we believe that investment management should focus on opportunities to produce real (positive) returns rather than relative returns.