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Total Return
Curious Cat Investing Dictionary: Total Return
Total Return - all gains and losses divided by total investment. Total return includes capital gains, or losses, and dividends and interests.
Normally, total return is expressed as total annual return. If the total return was 22% and the investment was held for 2 years the annual total return was 15% (in simple terms). This is not the best measure however, a better measure is total annual return compounded annually.
For example, $6,000 growing by 10% annually gains $600 in one year. After a year the investment is worth $6,600 and a 10% return in the second year would then gain $660. So after 2 years the investment would be worth $7,260 with a 10% annual total return compounded annually. Obviously, when comparing results it is important to use figures that are computed in the same manner for each investment.
Related Terms:
- Dividend Yield - total yearly dividends divided by the stock price.
- Interest - paid on interest bearing investments such as bonds and savings accounts.
- Capital Gain - the profits on the sale of a security or asset when it is sold for more than was paid. Long term capital gains receive preferential treatment in the tax code. The taxes on long term capital gains are less than for other types of income. short term capital gains are defined by the tax code and have normally been for gains on investments held less than a year (as it is now). If the investment is not sold the unrealized capital gain would measure the gain based on the current market price.
- Capital Loss - the loss on the sale of a security or asset when it is sold for more than was paid. If the investment is not sold the unrealized capital loss would measure the loss based on the current market price.
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