Total Return

Total return captures the full picture of investment performance by combining two sources of return: price changes and income payments. A stock that rises 5% and pays a 3% dividend has an 8% total return. Focusing on price alone misses a significant portion of long-term stock market returns.

Historically, dividends have contributed roughly 40% of the S&P 500's total return over long periods. An investor who only looks at the price chart misses nearly half the story. This is why total return, not just price return, is the correct measure for evaluating investment performance.

Total return is used to compare investments across different types. A bond fund that returns 5% through interest with no price change might outperform a stock fund that rises 4% with a 0.5% dividend yield. Without total return, the stock fund looks like the winner based on price alone.

For tax purposes, the components of total return are taxed differently. Capital gains (price appreciation) are only taxed when you sell. Dividends and interest are typically taxed in the year received. This distinction matters for tax planning and the decision between growth stocks (capital gains focused) and income stocks (dividend focused).

When measuring your own portfolio performance, use total return with dividends reinvested as the benchmark. Most portfolio trackers and index calculations assume dividend reinvestment, so comparing your returns to a price-only chart would be unfair to your performance.