Total Return

What is total return?

Total return measures an investment’s overall performance over a specified period by combining:
* Capital gains (change in market price)
* Income (dividends or interest)
* Other distributions (capital gain distributions from funds)

Expressed as a percentage, total return captures both price appreciation and income, giving a fuller picture of how much an investment actually earned.

Why total return matters

• It shows real growth: Focusing only on price appreciation ignores income that contributes to investor wealth.
• It’s essential for comparing investments (stocks, bonds, mutual funds) on an apples-to-apples basis.
• It helps set realistic expectations and plan for goals such as retirement.
• For funds, average annual total returns reflect reinvestment of dividends and distributions, so they better represent investor outcomes than price change alone.

Note: Reported returns may or may not include sales charges or fees—look at the disclosures when comparing funds.

How to calculate total return

Basic formula:
Total Return (%) = (Ending Value + Distributions − Beginning Value) / Beginning Value × 100

If distributions are reinvested, include the value of reinvested shares or interest in the ending value. For multi-period comparisons, use average annual total return (annualized) to reflect compounding.

Examples

1) Simple combined return
* Price gain = 24.5%
* Dividend yield = 4.1%
* Total return ≈ 24.5% + 4.1% = 28.6% (when yield is paid and not materially changing the denominator)

2) Reinvestment example
* Initial purchase: 100 shares × $20 = $2,000
* Dividend: 5% of $2,000 = $100 → used to buy 5 additional shares (reinvested)
* Shares after reinvestment: 105
* Ending price: $22 → Ending value = 105 × $22 = $2,310
* Total gain = $2,310 − $2,000 = $310
* Total return = $310 / $2,000 × 100 = 15.5%

Interpreting average annual total returns (funds)

• Average annual total return shows what an investor would have earned per year, on average, over a multi-year period (it is annualized and reflects compounding).
• Compare these returns to appropriate benchmarks to judge relative performance.
• Check whether reported returns assume reinvestment of distributions and whether they reflect fees or sales charges.

Key takeaways

• Total return = capital appreciation + income + distributions.
• Always consider reinvestment when measuring real investor outcomes.
• Use total return (and annualized total return for multi-year periods) to compare investments and to set realistic financial goals.
• For mutual funds, verify whether returns shown include reinvestment and fees before making comparisons.