What Is A Total Return?

moneyA total return is the actual return an investor achieves over a period of time. It takes into account not only the capital increase but any dividends received too.

Consider for example a share that started the year at $1 and ended the year at $1. In term of capital appreciation, the share has not benefitted the shareholder at all. However, if during the year, a dividend of $0.1was paid out then the return is not zero but instead 10%.

Often you may hear that the stock market has risen (or fallen) X number of points this year or that the benchmark index has risen (or fallen) by X%. This represents the capital change and ignores any dividends that may have been paid out.

Working out the total return can be a little involved but it nevertheless worth doing. A quick way to estimate the total return is to work out the change in capital and add in any dividends received as a percentage of the starting price. This should give a fairly good approximation of the total return.

The important thing to remember is that the return from investing in the stock market comprises of two components – capital appreciation and dividends. The latter is as important if not more so than simply look at how much the shares have gone up (or down) by.

The Motley Fool’s purpose is to help the world invest, better. Click here now  for your FREE subscription to Take Stock — Singapore, The Motley Fool’s free investing newsletter. Written by David Kuo, Take Stock — Singapore tells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead.

Like us on Facebook to keep up-to-date with our latest news and articles. The Motley Fool’s purpose is to help the world invest, better.  

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.