What is 'Estimated Long-Term Return'

Estimated long-term return is a hypothetical measure providing investors with an estimated expectation for the return they can expect over the life of an investment. It is most often quoted in investments with fixed income securities and a fixed duration.

BREAKING DOWN 'Estimated Long-Term Return'

Estimated long-term return is a metric that provides investors with a return estimate they can expect when investing in a fund over a long-term timeframe. 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, 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 fixed income realm 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.

Return Calculation

The estimated long-term return is typically calculated as an annual percentage return over a specified timeframe. 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.

  1. Expected Return

    Expected return is the amount of profit or loss an investor would ...
  2. Relative Return

    Relative return is the return an asset achieves over a period ...
  3. Fixed Income Forward

    A fixed income forward is a contract between two parties to either ...
  4. Investment Vehicle

    Investment vehicles are the choice of investment an individual ...
  5. Fixing

    Fixing is the practice of arbitrarily setting the price of a ...
  6. Annual Return

    Annual return is the compound average rate of return for a stock, ...
Related Articles
  1. Investing

    Debt Mutual Funds Vs. Fixed Deposits

    Learn about the advantages and disadvantages of debt-oriented mutual funds and fixed deposit accounts, including how each investment generates income.
  2. Investing

    Yield vs. Total Return: How They Differ

    Understanding yield vs. total return is essential in constructing portfolios that meet income generating needs while providing growth for the future.
  3. Investing

    Strategies for Fixed-Income Investors

    In the current economic environment, it can be challenging for fixed-income investors to get reasonable returns.
  4. Investing

    4 Benefits of Holding Stocks for the Long Term

    Discover some of the benefits that come from buying and holding stocks for longer periods of time, such as tax savings and risk minimization.
  5. Retirement

    How To Create an Effective Retirement Income Strategy

    A total return investment policy should balance the requirements of liberal income with sufficient liquidity to withstand down markets.
  6. Managing Wealth

    Basic Investment Objectives

    Different asset classes can generally be categorized according to three fundamental goals: safety, income and growth.
  7. Investing

    BND: Vanguard Total Bond Market ETF

    Learn about the Vanguard Total Bond Market exchange-traded fund, its primary portfolio holdings and risk/reward profile based on its past performance.
  8. Managing Wealth

    How Will Your Investment Make Money?

    Discover the basic types of investment income and which asset classes pay them.
  9. Personal Finance

    The 7 Best Places to Put Your Savings

    You work hard to put your money away for the future, but where should you keep it?
  1. What are the main advantages of fixed income securities?

    Learn why the addition of fixed income securities are common among investors who are attempting to limit their exposure to ... Read Answer >>
  2. What is the fixed asset turnover ratio and why is it important?

    Learn about the fixed asset turnover ratio and how this calculation is used to analyze how efficiently a company uses its ... Read Answer >>
  3. Calculate your portfolio's investment returns

    Learn the basic principles underlying the data and calculations used to perform personal rates of return on investment portfolios. Read Answer >>
  4. Use market risk premium for expected market return

    Find out how the expected market return rate is determined when calculating market risk premium – and how to estimate investment ... Read Answer >>
Hot Definitions
  1. Capital Asset Pricing Model - CAPM

    Capital Asset Pricing Model (CAPM) is a model that describes the relationship between risk and expected return and that is ...
  2. Return On Equity - ROE

    The profitability returned in direct relation to shareholders' investments is called the return on equity.
  3. Working Capital

    Working capital, also known as net working capital is a measure of a company's liquidity and operational efficiency.
  4. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  5. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  6. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
Trading Center