Return on investments

Return is an important concept for anyone who invests. It is a measure of how much your investment has increased or decreased in value over a given period. Returns can be positive or negative and are dependent on several factors, including the type of investment, time horizon and risk, but also the benchmark against which you measure your investment.

In this article, we will take a closer look at investment returns. We will define return and review different types of investments and their pros and cons, including return and risk.

Return: Definition and calculation

Return is typically defined as the percentage change in the value of an investment over a given period. It is often expressed as a percentage growth or as a percentage increase over the original investment.

For example, if you invest DKK 10,000 in a share and after one year the value of the share has increased to DKK 11,000, your return is 10% for that year.

There are different ways of calculating returns, which can depend on the type of investment and what inputs are included in the return, such as costs, taxes, etc.

Therefore, if you want to compare returns across investment types and investment providers, you must pay attention to whether the stated returns are calculated on the same basis and include the same inputs.

The return on the investment is also dependent on several other factors, including

• The type of investment: Some investments, such as shares, typically have a higher return potential than other investments, such as bonds. In addition, different investment types may also have different ways of calculating returns.
• The time horizon: The longer your time horizon, the more likely you are to get a high return, but this often depends on the type of investment.
• Risk: The higher the risk, the higher the likelihood of a high return, as investors will often require a higher expected return to take on more risk.
• Benchmark: What do you measure your investment and returns against? For example, if you have a negative return of 1% on an investment while the overall market for that type of investment has fallen by 10%, your return may be considered satisfactory even though you have lost money.

Advantages and disadvantages of different investments

Different types of investments have different advantages and disadvantages when it comes to returns. Here is an overview of some of the most well-known types of investments:

Stocks

Stocks are one of the most popular types of investments. Stocks offer the opportunity to invest and gain ownership in companies and participate in their growth. Stocks typically have a high return potential, but also a high risk. However, this also depends on the type of stock.

Benefits:

• Potential for high returns
• The ability to invest in companies you believe in
• Returns are often relatively easy to calculate for listed stocks

Disadvantages:

• Potential for high risk
• Can be volatile and fluctuate in value

Bonds

Bonds are a type of loan that you as an investor make to a company in the case of corporate bonds or a government in the case of government bonds. Bonds often offer a lower return than shares, but also a lower risk.

Advantages:

• Often lower risk than stocks
• Can provide regular income in the form of interest

Disadvantages:

• Lower return potential
• Can be illiquid
• Not as accessible to private investors as listed shares

Real estate

Real estate is another popular form of investment that falls under alternative investments. Real estate can offer high returns but also high risk, depending on the type of real estate investment, which ranges from developing new properties to investing in completed operating properties.

Pros:

• Potential for high returns
• Return on ongoing operations through rentals
• Low correlation with the stock market

Disadvantages:

• Risk can be more complex including rental vacancies or potential declines in property value
• Can be expensive and complex to access as a private investor

Learn more about real estate investments here.

Alternative investments

Alternative investments are defined as alternatives to the traditional listed investments of stocks and bonds. Alternative investments can include investments in real estate, infrastructure, forestry, commodities, venture capital funds and a wide range of other assets. They can have high return potential and diversification benefits, but also high risk and complexity for private investors.

Benefits:

• Potential for high returns
• Potential for ongoing operational returns from the assets
• The ability to diversify your portfolio

Disadvantages:

• Higher risk than traditional investments
• Less liquid than publicly traded investments
• Can have high barriers to entry
• Can be complex

The Selected Alternatives Fund

The Selected Alternatives Fund is an alternative investment fund that includes investments in solar energy, wind energy, green infrastructure and real estate. Read more about the Selected Alternatives fund.

The investment is only suitable to experienced investors as defined in the Financial Services (Experienced Investors Fund) Regulations 2020. Furthermore, the minimum investment is EUR 100,000 and is subject to compliance with our subscription and onboarding process.

To learn more about your investment opportunities in wind energy, please fill out the form below.