 # What is Total return?

Total return is a measure of an investment’s performance that takes into account both the change in the investment’s price and any distributions made to the investor. The total return calculation is used to compare the performance of different investments.

The total return of an investment is the sum of the amount invested, including dividends, price appreciation, and sales charges. You may be wondering what the formula is. Here’s an example: Imagine that you buy a stock which pays out a quarterly dividend of \$1 and a year-end dividend of \$4. You reinvest these dividends each quarter, and the stock rises 20% to \$60 by December. This is called a total return index.

#### Calculating total return of an investment

Investing in stocks can provide you with a lot of benefits. For instance, you can see the value of the investments you have made over time and compare them. If you invest in \$100 stocks, you will earn \$150 if they increase in value by ten percent. In the same example, if you invested in \$100 stocks but waited until they doubled in value, you will earn \$115 if you wait only six months. Similarly, if you invest in a company that pays a \$5 dividend every year, you will receive \$120 if you buy that stock.

To calculate the total return of an investment, you must first determine the capital gains or losses. Dividends and other distributions also count toward the total return. Using this formula, you can determine if your investment is profitable or not. Dividends and other forms of income can increase your total return. Reinvesting dividends is another way to maximize your total return. You can also find out how to calculate the amount of taxes you’ll owe on the investment if you’re investing your money in real estate.

#### Including dividends

Including dividends in the total return calculation can give you a better idea of how much your investments have grown over the years. The contribution of dividends to total return varies greatly over time. An analysis by Hartford Funds of the Standard & Poor’s 500 Index (a widely followed US large cap barometer) shows that over the period of 1930 to 2019, the divided component accounted for 42.4% of the total return, equivalent to 1.8% annualised. While this percentage looks impressive, it is not a reliable indicator of the total return of your investment.

Reinvesting dividends complicates the total return calculation. The dividend payment date method makes this calculation difficult because reinvestments include the capital gains from newly purchased shares. Reinvesting dividends means you will end up with more shares than when you started. Including dividends in the total return calculation is a key factor in determining the investment performance of your portfolio. However, this calculation is difficult to complete, and it is not an accurate representation of the economic reality of investing.

#### Including price appreciation

The calculation of total return includes income and price appreciation from an investment. This is usually expressed as a percentage, allowing investors to compare the performance of various assets. The term “total return” is also often used to describe a percentage gain on a hypothetical investment. In most cases, the increase in value is calculated on a multiple of the initial investment. When you use the figure to compare total returns, be sure to consider the amount of investment capital used to create the investment.

Depending on the market, total return can have a different calculation for the first two components. Dividends are a major source of income, and will be included in total returns. Dividends are usually reinvested, so that they are included in the calculation. The second component is index count, which includes the number of securities that were in your portfolio during the period. YCharts uses both methods, and both assume that dividends are reinvested. Sales charges and stock splits are not included in either calculation.

#### Including sales charges

Investors use the total return to measure how much money they can expect to earn on a particular investment over time. The total return is a metric for evaluating historical performance, as well as the expected future growth. Total return numbers almost always reflect reinvestment of capital gains and dividends. However, they may not include the effect of sales charges, which are disclosed with return numbers. This article looks at the difference between these two types of charges and how they impact total returns.

#### Including taxes

Including taxes in total return is a simple way to determine your expected growth over time. Using your cost basis as a starting point, the total return reflects all the income your investment generated. That includes dividends, interest, non-recurring special dividends, and capital gains on the sale of your investment. In addition, you should account for any sales charges that may have been incurred on the purchase of your investment.

In conclusion, total return is an important measure to consider when evaluating an investment. By understanding what it is and how to calculate it, you can make more informed investment decisions.

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