Total Return

Total return is a measure of the performance of an investment, including both income and capital gains. It is calculated by adding the income received from the investment (dividends or interest) to the change in the investment's value over a period of time.

Total return is a more comprehensive measure of investment performance than simple return, which only considers the change in the investment's value. Total return takes into account the income that the investment generates, which can be a significant factor in the long-term performance of an investment.

There are two main types of total return:

• Nominal total return: This is the total return of an investment before taking inflation into account.
• Real total return: This is the total return of an investment after taking inflation into account.

Real total return is the more important measure of investment performance, as it reflects the actual purchasing power of the investment.

Total return is an important concept for investors to understand, as it allows them to compare the performance of different investments and make informed investment decisions.

Here are some additional points to keep in mind about total return:

• Total return is not the same as compound return. Compound return is the total return of an investment that is reinvested over time.
• Total return can be negative. This can happen if an investment loses value over time.
• Total return is not guaranteed. There is no guarantee that an investment will generate a positive total return.

Total return is a valuable tool for investors, but it is important to understand its limitations. Investors should use total return in conjunction with other investment metrics to make informed investment decisions.