Return

What Is a Return?

A return measures how much an investment has gained or lost over a specific period. It can describe a single stock, a mutual fund, a bond, or an entire portfolio. Returns are usually stated as a percentage of the amount originally invested, which makes it easier to compare investments of different sizes.

Returns can come from two sources. The first is a change in the investment's market price, known as a capital gain or loss when the asset is sold. The second is income paid by the investment, such as dividends from stocks or interest from bonds. A full return figure usually includes both.

How Return Is Calculated

The basic percentage return over a period is:

Return = (Ending Value − Beginning Value + Income) ÷ Beginning Value

For example, suppose a share is bought for 50 and worth 55 at year end, and it paid 1 in dividends. The return is (55 − 50 + 1) ÷ 50, or 12 percent. Investors who hold for different lengths of time often annualize returns so that periods can be compared on a yearly basis, though annualizing short periods can exaggerate results.

Common Ways Returns Are Reported

Returns are often shown in several forms. A total return includes both price changes and income, while a price return counts only the change in market value. Returns can also be reported as cumulative figures over a whole period or as annualized figures for each year. Many fund and brokerage reports list returns over several time frames, such as one year, five years, and since inception, so readers can see how results vary across periods.

Returns and Risk

A return only describes what happened, not what was expected. Higher returns generally come with higher risk, and a single period's result can be misleading. Returns are often reported before or after inflation and fees, and the two can differ substantially. Reading a return alongside its time frame, risk, and costs gives a fuller picture than the headline number alone.