In relative return investing, the performance of the investment moves with the general market. Normally we refer this market to the stock market. However, strictly speaking the market can be something else like bonds or even fixed deposits. The idea behind relative return investing is to attempt to do better than the market. Thus, if the stock market sinks by -20% but the investment returns -15%, it means that the investment has done marvelously well. This despite that the investor actually make a monetary lost. Well, while this seems to surprised many, relative return investment is the default investment approach for a typical retain investor. Examples of relative return investment are like investing in shares and unit trusts. For shares, the share price are influence by two main factors: company's performance and stock market senitment. Thus if the stock market sinks, it is of no surprise that a company's stock price shall comes down even if it is a good company. However, if it is such a good company, it may fall less than the stock market (thus, the share price outperforms the stock market). Similarly, most unit trusts works the same way as the fund manager is measured by its ability to outperform the market's indices. The default investment approach is something which many retails have to accept. There do not seem to have much a choice. Fortunately, equity market tends to go up on a long run. Yet, this is not good for those with shorter time horizon like a retiree. You cannot ask a 70 year old retired person to wait long term - he or she would be dead by then!

What is absolute return? For such an approach, the investment attempts to provide positive returns regardless of market condition. Normally the positive returns tries to do this over a short period of time like 3 to 5 years (on a one year basis, it is still possible that it losses money). It is almost impossible to have absolute return using plain vanila shares and unit trusts. During the market downturn, at very best one can do is to switch the money into cash. The problem is that it is impossible to precisely time the market for the switch and secondly after netting off inflation, it is still possible to make a lost over that year if the bulk of the money is in cash. The only way to obtain absolute return is to consider other strategies and gain access to alternative asset classes. This I am afraid is usually not available for retail investors.