Risk-Adjusted Return: How Australians Are Measuring Investments in 2025

In a world where market volatility is the new normal, Australian investors are shifting focus from raw returns to a more nuanced measure: risk-adjusted return. It’s not just about how much you make, but how much risk you take to get there. As 2025 unfolds with policy changes and evolving market conditions, understanding risk-adjusted return has never been more vital for everyday Aussies and seasoned investors alike.

What is Risk-Adjusted Return and Why Is It So Important?

Risk-adjusted return evaluates how much return an investment generates relative to the amount of risk taken. Instead of chasing the highest possible gains, this metric tells you whether you’re being rewarded enough for the risks you’re shouldering. In other words, it helps you compare apples to oranges—growth shares to blue chips, property trusts to ETFs—on a level playing field.

• Sharpe Ratio: Measures excess return per unit of volatility. Higher is better.
• Sortino Ratio: Focuses on downside volatility, making it a favourite for risk-averse investors.
• Treynor Ratio: Looks at return per unit of market risk, ideal for diversified portfolios.

In 2025, with interest rates stabilising after years of hikes and the ASX experiencing renewed volatility, these ratios are more than academic—they’re essential for portfolio construction and performance benchmarking.

How 2025 Policy Updates Are Shaping Investment Risk in Australia

Regulatory shifts and macroeconomic changes are impacting risk profiles across asset classes. Notable 2025 updates include:

• Superannuation Fund Transparency: New APRA requirements mean super funds must disclose risk-adjusted performance figures, helping members compare options more easily.
• ASIC’s Managed Fund Oversight: Tighter guidelines on risk disclosure for managed funds, making it easier for investors to assess not just returns but the volatility behind them.
• ESG and Climate Risk Reporting: Listed companies are now required to disclose climate-related risks, adding a new dimension to the risk calculus for equities.

These changes empower Australians to make more informed decisions, especially as alternative assets like green bonds and infrastructure projects gain popularity. For example, a green bond may offer a lower yield than a traditional corporate bond, but with lower volatility and improved risk-adjusted return due to government guarantees or stable cash flows.

Real-World Examples: Risk-Adjusted Return in Action

Let’s say you’re comparing two Australian ETFs: one tracking the ASX200, the other focusing on emerging tech stocks. In 2024, the tech ETF returned 15%, while the ASX200 ETF returned 10%. But the tech ETF had double the volatility. In 2025, with global tech regulation tightening, the tech ETF’s risk-adjusted return drops, making the steadier ASX200 ETF more attractive for risk-conscious Aussies.

Or consider superannuation: Fund A delivers 9% returns with high swings, while Fund B returns 7% with far less volatility. In the new regulatory environment, Fund B’s higher risk-adjusted return may make it a smarter long-term bet—especially as APRA now requires funds to report these figures front-and-centre.

• Property trusts: Commercial property trusts have seen increased risk due to hybrid work trends, reflected in lower risk-adjusted returns compared to residential REITs with stable rental yields.
• Fixed income: The RBA’s 2025 pause on rate hikes has made Australian government bonds less volatile, enhancing their risk-adjusted appeal for income-focused investors.

How to Use Risk-Adjusted Return in Your Portfolio Strategy

Whether you’re building a portfolio from scratch or reviewing your super options, risk-adjusted return should be front-of-mind. Here’s how to apply it:

• Don’t chase raw returns—always ask, “How much risk am I taking?”
• Use comparison tools and fund reports that highlight Sharpe or Sortino ratios.
• Review your super fund’s new risk-adjusted return disclosures to ensure your retirement savings are working efficiently.
• Consider diversifying with assets that improve your overall risk-return profile, such as infrastructure or green bonds.

In 2025, even DIY investors have access to platforms that calculate risk-adjusted metrics for shares, funds, and even crypto. With transparency at an all-time high, there’s no reason to settle for unnecessary risk.