Estimated Long-Term Return

What Is Estimated Long-Term Return?

Estimated long-term return is a hypothetical measure that forecasts an investor's expected return over the life of an investment and is typically quoted for fixed-income investments with a fixed duration.

Key Takeaways

  • Estimated long-term return is a hypothetical measure that forecasts an investor's expected return over the life of an investment and is typically quoted for fixed-income investments with a fixed duration.
  • Typically, the estimated long-term return is calculated as a yearly rate of return over a specified time frame and is often presented net of estimated fees.
  • Estimated long-term return can be comparable to a savings account rate or the rate of interest quoted for a certificate of deposit.

Understanding Estimated Long-Term Return

Estimated long-term return is a metric that provides investors with a return estimate they can target when investing in a fund over a long-term time frame. This measure can be comparable to a savings account rate or the rate of interest quoted for a certificate of deposit. Generally, fund managers reporting estimated long-term return will be able to arrive at this calculation because the underlying fund investments have a specified return that is given at the time of initial investment.

Many fixed-income funds may choose to disclose estimated long-term return in their registration documentation and marketing materials. Proposals have also been made to provide this information in the Form S-6, which is the registration statement filing for unit investment trusts (UIT), though no final rules have been dispersed.

Unit investment trusts, and specifically UIT portfolios with a high allocation to fixed-income investments, can provide an ideal vehicle for estimated long-term return disclosure. These investments are one of three formal investment companies regulated by legislation from the Investment Company Act of 1940. These investments are created through a trust structure and issued with a fixed maturity date. In the realm of fixed income these investments can be a good alternative to high-yield savings accounts and certificates of deposit.

Overall, estimated long-term return disclosure can be a marketing measure, easily quoted by fixed-income funds, that can increase marketability. Most funds will have a higher estimated long-term return than high-yield savings accounts or certificates of deposit which can draw investors seeking low-risk fixed-income investments.

Estimated Long-Term Return Calculation

Typically, the estimated long-term return is calculated as a yearly rate of return over a specified time frame. It is often presented net of estimated fees. In fixed-income portfolios it can easily be based on the yields of all the underlying securities in a portfolio. In this case, it is usually weighted to account for each security's market value and maturity.

The estimated long-term return can be a helpful point of consideration when planning on investing in a fixed-income product over the long term. It can give a fairly accurate estimation of the return on the portfolio. It is also similar to the yield to maturity measure of a single bond extended to a portfolio, with some adjustments.

Take the Next Step to Invest
×
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.
Service
Name
Description