# What is total return? Definition and meaning

**Total return** is the total income earned, i.e., dividends plus capital gains, from an investment over a given period. In most cases, that period is one year.

Total return is typically expressed as a percentage of the amount that was invested. It is the sum of all the different benefits resulting from investing in an asset, including any change in that asset’s market value â€“ capital gains – as well as income paid to the investor.

With the equation below, you can work out the percentage of the invested amount:

**Capital gains Ă· Initial Investment x 100 = Total Return**

The income usually consists of the dividends, interest, and securities lending fees. The termÂ contrasts with *price return*, which only takes into account an investment’s capital gain.

According to the *Financial Times’* glossary of business terms – *ft.com/lexicon*:

“Total return is the full return on an investment over a given period, including the income generated from dividend, interest or rental payments, and any gains or losses from a change in the asset’s market value.”

“This is normally expressed as a percentage of the purchase cost, annualized if the period is less than a year.”

**An example of total return**

Imagine you purchase 100 shares of John Doe Inc. stock at $40 per share for an initial value of $4,000. John Doe shares pay a 5% dividend ($200), which you reinvest, i.e. you purchase five more shares. After twelve months, John Doe’s share price appreciates to $44.

**What is your total return?** You divide the total investment gains by the investment’s initial value, and then multiply the result by 100 to get a percentage return.

– *Total investment gain* is $620 (105 shares x $44 per share = $4,620. Minus the initial value of $4,000 = $620 gain).

– *The investment’s initial value* was $4,000.

The equation is:

**$620 ***(gain)*** Ă· $4,000 ***(initial investment)*** x 100 = 15.5%**

Your total return is 15.5%.

**Total return fund**

ThisÂ is a fund that aims to maximize gains from both generating investments, such as government bonds and dividend-paying shares, while at the same time aiming to invest in assets which gain in value.

If you invest in a total return fund, you should reinvest your income gains. The investmentâ€™s final return is the total generated by the capital appreciation of the assets that the fund invests in, plus the income they have provided.

**Video – What is total return?**

This *MBN Video Dictionary* video explains what total return is using simple language and easy-to-understand examples.