Total Return

Beginner

Also known as: Holding Period Return

Total return is the full gain or loss on an investment over a period, combining the income it paid with the change in its price.

Looking only at price changes can give a misleading picture. A share that barely moved in price may still have paid generous dividends, and a bond's interest payments can matter more than its price. Total return adds both parts together, so investors see what they actually earned.

Suppose you buy a share for 50, receive 2 in dividends while you hold it, and sell it for 54. Your price gain is 4 and your income is 2, giving a total return of 6. On your original 50, that is a total return of 12%.

Total return usually assumes any income is reinvested, which is how fund performance and market indices are commonly reported. A total return index rises faster over time than a price-only index of the same shares, because reinvested dividends earn returns of their own.

For a fair comparison, total returns should cover the same period. A 12% return earned over one year is very different from 12% spread over three, which is why longer returns are often converted into an annual rate.

Note: Holding period return means the same as total return measured over the exact time an investment is held, from purchase to sale.

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