What Is Total Return?

Introduction

When people talk about how well a stock performed, they often just mention the price change. But that leaves out an important part of the story. Total return includes everything an investment earns.

What Is Total Return?

Total return combines price changes with any income an investment produces, like dividends or interest. If you buy a stock for $100, it rises to $105, and you receive $3 in dividends, your total return is $8, or 8%.

Why It Matters

Looking only at price changes can make dividend-paying stocks look less impressive than they really are. Over long periods, reinvested dividends have made up a large share of the stock market's total returns. Total return gives a more accurate way to compare investments.

Using Total Return

When comparing funds, look at their total return over several time periods, such as one, five, and ten years. Many financial websites show total return figures. Remember to consider fees and taxes, which reduce the return you actually keep.

Conclusion

Total return shows the full picture of how an investment performed. Using it helps you make smarter comparisons and better decisions!