9 Absolute Return Strategies to Try in 2022
Even though the S&P 500 is down this year, investors that invested five years ago have benefited from an absolute return of over 40%.
This means that if you invested and held onto your shares over the last few years, you are still reaping the rewards. Maximizing your returns is an essential part of building an investment portfolio. At the end of the day, you work hard for your money, so you should invest it in a way that allows it to grow.
This is why it’s so important to invest over the long term with absolute returns in mind. In complete contrast to day trading, this strategy looks into the future to protect and grow an investment portfolio for you to hand down to future generations.
Want to learn about the best absolute return strategy to use for your investment portfolio? You’re in the right place. Here’s everything you need to know to maximize your returns.
When investing your money, you want to ensure that you’re getting the best returns possible. However, not all returns work in the same way. Some assets and securities are set up differently to help give you the best kind of return possible.
While a traditional business may be focused on making a net profit at the end of the year, other businesses may prioritize growth, so they reinvest all the profits. This highlights the fact that the same business can leverage very different strategies to achieve its own goals.
In the world of passive investing, different funds can operate in various ways. These funds can either be incredibly aggressive to try and grow your money fast, while others may take a slower approach to prioritize the protection of assets. These different funds can be categorized according to their risk profiles as the more aggressive funds tend to come with a lot more risk.
While everyone may love the sound of exponential growth, prioritizing protection can help you maintain your wealth through turbulent economic times. This is a reality that should be prepared for as we have seen major stock market crashes over the last few years. If your assets are not well protected, you could see massive chunks of your wealth disappear before your eyes.
Different Types of Returns
When it comes to calculating your investment returns, there are two major types of returns that you deal with. These are relative returns and absolute returns. While they may sound similar, these two kinds of returns represent entirely different approaches to investing.
Here’s a quick look at the two different types of returns.
A relative return is a return that has been benchmarked against another return. This means the return itself gains some of its value from how it performed against something else. In most cases, mutual funds will benchmark their returns against how other firms have performed.
This is a classic way to try and showcase how much better off your money is with them compared to if you had put it elsewhere. While this achieves its objective, it does not give you a clear indication of how well your money has done independently of exterior influences.
In a way, relative returns seek to show you if you have done better or worse than an alternative investment decision. One of the most popular relative returns that funds love to use is a comparison with the S&P 500. Since the S&P 500 is the most popular index in the world, funds love to show how much better they performed compared to if you were to just invest all your money in the index.
While relative returns only show you how well you did compared to another investment, absolute returns cut out all the noise to show you how much your portfolio grew. This means that they don’t waste your time selling you on anything else besides the actual growth that was achieved on your portfolio.
This metric represents an entirely different investment philosophy as absolute return funds aim to create portfolios that are immune to the rest of the market. While no investment can truly be isolated from the market, these funds use innovative strategies to help protect every investment.
In this way, absolute return funds look into the future to try and create portfolios that can remain stable as they grow. This means minimizing risk in every possible way to help create a sustainable strategy for the future.
The Absolute Return Formula
Finding the absolute return on an investment is incredibly simple. This is because you remove all the exterior benchmarks and look at the investment value at the beginning and the end.
This means that if you invested in a company for $1 million and that investment is now worth $2 million, your absolute return is 100%.
If the time period is one year, then you can say the absolute return was 100% over one year. In this case, the time period just adds extra information about the investment so that you can showcase how long it took you to achieve that return.
The Best Absolute Return Options
Absolute return funds operate in a very different way compared to traditional mutual funds. These funds are designed more to protect assets rather than to aggressively grow. This calm and collected approach is what investors look for as they seek to lower their risk and exposure.
These funds are focused on absolute returns and use a wide range of strategies to help secure these returns for investors. These strategies range from private equity investments to alternative investments to hedge against the entire world economy. Here’s a quick look at nine of the best absolute return strategies you can use to protect and grow your portfolio today.
As mentioned above, absolute return funds are all about keeping risk under control. The easiest way to mitigate risk is to diversify your entire portfolio. This means investing in multiple different assets and asset classes to help spread out the risk.
While most funds diversify, they are also limited to the kind of fund that they are running. For example, a tech fund can’t exactly diversify its portfolio by investing in another industry. This is because they would not be considered a tech fund after doing so.
This is why indexes are so popular amongst investors looking to diversify their portfolios. Indexes traditionally group hundreds of companies into a single security with the explicit aim of diversifying and lowering the overall risk of the investment.
2. Real Estate Hedging
If you’re building your own portfolio and want to prioritize absolute returns, consider using real estate to diversify your portfolio. This is because real estate is a great way to protect your capital against inflation. Whether you plan to live in the property you buy or rent it out for passive income; real estate is known to be one of the safest investments you can make.
While real estate can help protect your portfolio against inflation, you should not overlook its ability to generate an income. This income is also protected against inflation as rental prices tend to rise alongside inflation. This means that as your mortgage payments increase, so does the income you receive from rent.
3. Private Equity
Despite stocks and bonds being some of the most popular investments, private equity often provides you with larger returns. This is because private companies offer incredible deals to investors in exchange for the capital that they need. In some cases, investors have managed to turn a few thousand dollars into a few million dollars in just a few years.
This means that the absolute returns that you can achieve on private investments like this are incredibly lucrative. However, investments like this are also risky as these startups often fail. This is why it’s important to diversify your portfolio with only a few carefully hand-picked private equity investments that you actually believe in.
In some cases, investors only choose private investments that they can also help make a success. This way, they are playing a role in ensuring that the investment is protected.
4. Short Selling
Short selling is another popular strategy that absolute return funds use to maximize their returns. This is the process of borrowing a security from someone else in order to sell it off immediately. This is done in the hopes that the price will drop so that you can buy it at a lower price before returning it to the owner.
While there are significant risks in doing this, some funds use this as a hedge against the downside risk of going long on the stock. This means that you can use short selling to help protect your other investments, as you can make money whether the stock goes up or down.
Future contracts are financial contracts between you and another party. This contract simply states that you agree to buy or sell an asset at a certain time and at a certain price in the future. This finalizes the price that you’re going to pay for the asset even if the market changes.
While futures can be risky, this risk can be controlled and leveraged to actually lower the risk of your overall portfolio. This is because you can use futures contracts to hedge against the rest of your investment portfolio. Ultimately, this plays a role in helping you reduce your overall risk.
Similar to futures, options are financial contracts that allow you the option to buy or sell a stock at a predetermined price. This can allow you to lock in some great deals but also protect yourself against any downsides. For example, if you have the option to sell a stock at a certain price, you can exercise your options as soon as the stock falls below that to reduce your loss.
This is a great way to protect your investment and minimize losses in the market.
Derivatives are financial contracts that are dependent on an underlying asset. This means that the price of a derivative can fluctuate depending on how that asset performs in the market. While these financial products carry some risk, they allow you to effectively move risk to protect your initial investments.
Arbitrage is a strategy that many investors use to exploit any inconsistencies in the market. This strategy includes the buying and selling of the same share in different markets to profit over tiny discrepancies. While these returns are small, they are relatively safe.
This makes it a great way to lock in returns without leaving yourself exposed to the market.
9. Alternative Investments
While many people may be weary of alternative investments, the truth is that these investments can act as the best hedge against inflation and the global market. Investments in alternative assets such as cryptocurrency and digital securities are some of the most popular options as they are incredibly easy to invest in.
These investments don’t share a direct link with the rest of the global economy, making them the most immune to external economic pressure. While there are some risks associated with investments like this, the right partner can help you create a diversified portfolio with the durability to stand the test of time.
Get The Best Returns With a Crypto Hedge Fund
When it comes to your hard-earned money, you want to invest over the long term. This means that you’re not interested in short-term gains but rather the absolute return over time.
If you are interested in boosting your portfolio with crypto, investing in a crypto hedge fund is a great way to go. Want to learn more about how to get started? Contact us today!
Learn More: Take the crypto quiz
Take a three-minute quiz to learn how to become a more confident crypto investor.
When you take the quiz, you'll get a 15-page PDF report summarizing your qualifications:
- Do I understand my wealth objectives?
- Do I have the knowledge to confidently invest in crypto?
- What is the impact of crypto investing in my portfolio?
Last updated June 1, 2022
The information provided by TrueCode Capital ("we," "us," or "our") on https://www.truecodecapital.com (the "Site") is for general informational purposes only. All information on the Site is provided in good faith, however we make no representation or warranty of any kind, express or implied, regarding the accuracy, adequacy, validity, reliability, availability, or completeness of any information on the Site. UNDER NO CIRCUMSTANCE SHALL WE HAVE ANY LIABILITY TO YOU FOR ANY LOSS OR DAMAGE OF ANY KIND INCURRED AS A RESULT OF THE USE OF THE SITE OR RELIANCE ON ANY INFORMATION PROVIDED ON THE SITE. YOUR USE OF THE SITE AND YOUR RELIANCE ON ANY INFORMATION ON THE SITE IS SOLELY AT YOUR OWN RISK.
The Site cannot and does not contain financial advice. The financial information is provided for general informational and educational purposes only and is not a substitute for professional advice. Accordingly, before taking any actions based upon such information, we encourage you to consult with the appropriate professionals. We do not provide any kind of financial advice. THE USE OR RELIANCE OF ANY INFORMATION CONTAINED ON THE SITE IS SOLELY AT YOUR OWN RISK.
Learn about our Fund Performance
We strive to create asymmetric growth opportunities by leveraging the latest in machine learning, financial engineering, and risk management methodologies.