Active return is the return on an investment after taking into account the effects of inflation. It is used to measure the real rate of return on an investment, as opposed to the nominal return, which does not take into account the effects of inflation.
In order to calculate the active return, you will need to adjust the nominal return for inflation. The formula for this is:
Active Return = (Nominal Return – Inflation Rate) / (1 + Inflation Rate)
For example, let’s say you invested in a stock that returned 10% last year. However, during that same time period, inflation was 3%. This means that your real rate of return was only 7%.
While the nominal return is a good metric to use when comparing investments, it’s important to also look at the active return in order to get a more accurate picture of how much your investment is really worth.
There are a number of factors that can affect the active return on an investment, such as inflation, taxes, and fees. It’s important to take all of these into account when making any investment decision.