Total Return

When it comes to investing, understanding the overall performance of your portfolio is vital. In the trading world, this performance assessment is often done through a concept known as the Total Return.

What is Total Return?

In the simplest terms, Total Return is a measure of the overall gain or loss made from an investment over a set period. This includes both the capital appreciation and the income generated from the investment. No matter if the income comes in the form of dividends, coupon payments, or interest, it's all added to the final tally.

Why Total Return Matters

Regularly evaluating the Total Return of your investments provides a comprehensive view of how well the investments are performing. Moreover, it can influence your decision-making process. For instance, stocks with continuing positive total return trends could be chosen over those showing negative ones. This may lead to a healthier and more balanced portfolio.

Calculating The Total Return

Calculating the Total Return is relatively straightforward. You combine the change in the investment's price (capital gain or loss) with any income generated by the investment during the period. Take this sum, and divide it by the investment's initial price. The result is your Total Return, often expressed as a percentage.

Total Return Vs. Price Return

Many new investors confuse Total Return with Price Return. While Price Return reflects the change in the price of an investment alone, Total Return considers both the change in price and income generated—making it a more complete evaluation of an investment's performance.

Concluding Thoughts on Total Return

Understanding the concept of Total Return is key to make informed trading decisions. It provides a comprehensive performance picture, helping guide future investments. Remember, however, that calculating Total Return requires complete, accurate records of both your initial investment and any income generated throughout your holding period.