Total return is the most important metric for any investor, as it measures the overall success of an investment. It combines the change in the market price of an asset with any income generated (dividends or interest).
Total Return vs. Yield
Income investors often fall into the trap of looking only at yield. However, if a fund pays a 10% dividend but its share price drops by 12% in the same year, the total return is -2%. The investor has lost money despite receiving "income."
The Importance of Reinvestment
Calculations for total return usually assume that all distributions are reinvested back into the security. This captures the power of Compound Growth. Over long periods, reinvested dividends can account for a massive portion of total returns.
Inflation-Adjusted Return
To find your "real" total return, you must subtract the rate of inflation. If your total return was 7% and inflation was 3%, your real return was 4%.
DivAgent Educational Standards
This definition is part of the DivAgent Income Academy curriculum. Our glossary is designed to bridge the gap between institutional jargon and retail investor understanding. Each term is reviewed by our Research Team for accuracy, specifically in the context of:
- Tax implications (Ordinary vs. Qualified)
- Impact on Total Return calculations
- Relevance to Option-Income strategies
- Risk assessment in a retirement portfolio
*While we strive for precision, financial terminology can evolve. Always verify definitions with official regulatory sources (SEC, IRS) when making tax or legal decisions.