Risk-Adjusted Return: Overview and Example

By Kristi Waterworth – Updated Sep 6, 2025 at 3:37 PM | Fact-checked by Frank Bass

Key Points

High risk-adjusted returns suggest efficient performance for the invested capital.
Low risk-adjusted returns indicate potentially suboptimal investments.
Comparing risk-adjusted returns helps select better-performing portfolios.

It's one thing for us to tell you that your risk tolerance matters and that you should consider it in your investing practices, but it's quite another to actually measure the outcomes of that. Risk-adjusted return is one way to do just that -- and tease out the level of risk from the returns you're earning. Read on to learn more.

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A blue sign that says Risk Ahead. — Image source: Getty Images.

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About the Author

Kristi Waterworth has been a contributing real estate and financial expert at The Motley Fool, covering real estate, investing, and personal finance topics, since 2020. Kristi has been interviewed by various TV media outlets and podcasts for her real estate investing expertise – from residential real estate to digital real estate and everything in between. Kristi’s journalist career spans over 25 years, and she has written about real estate investing, homeownership, and home construction specifically for the last decade. She was also previously a licensed Realtor and general building contractor before the Great Recession and housing market collapse. She holds a bachelor’s degree in American history from Columbia College in Missouri.

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