What is “Total Return” and why is it important?
If you reinvest all of your gains, including dividends and interest, you will be getting the most from compounding. The percentage you achieve is termed “total return.” It includes appreciation, interest and dividends. It is particularly important in examining the past and current performance of mutual funds. Mutual funds must, by law, distribute almost all of their capital gain and dividend income each year. Many investors reinvest these distributions, using them to buy more fund shares. Because the funds share price is reduced after a fund makes a distribution, the long-term price trend of a funds shares may not accurately reflect the fund’s performance. However, the funds total return, which takes into account reinvested dividends, is often a more accurate reflector of the funds performance.
