Total return

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Total return

As investors use the term, total return is the change in value of an investment over a given period, assuming reinvestment of any dividends or capital gain distributions, expressed as a percentage of the initial investment. [1] The total return includes dividends, capital gains distributions, and the increase in the net asset value of the asset. [1]

Assets are usually purchased, or equivalently a deposit is made, in hopes of getting a future return, or interest from it. Assets are held to have some recurring, or capital appreciation. Assets are expected to give income, without any work on the asset per se. [2] Total return is all that is expected to return, assuming it is reinvested and expressed as a percent.

Example

An investor purchases an asset for $100 on 1/1/90. The asset yields $10 of cash flows at the end of one year. After one year, the asset has a market value of $130. The investors total return is thus:

Total Return = ( (130 + 10) / 100 ) - 1 = .4, or 40%

Cash Flow

Seen from a cash flow perspective, an asset is something that puts money in your pocket, and a liability is something that takes money out of your pocket. [2] The word investment originates in the Latin "vestis," meaning garment, or vest, and refers to the act of putting assets into others pockets. [3]

14c total from entire, sum total, all, whole. [4] 14c "to come back, act of coming back;" 16c a yield, a profit returning. [5]

References

  1. Mutual Funds: An Introduction to the Core Concepts by Dr. Mark Mobius ISBN-10: 0470821434 pg 83
  2. Rich Dad Poor Dad Robert T. Kiyosaki ISBN-10: 0446677450 pg61
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