The total return on a portfolio of investments takes into account not only the capital appreciation on the portfolio, but also the income received on the portfolio. The income typically consists of

interest In finance and economics, interest is payment from a borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum (that is, the amount borrowed), at a particular rate. It is distinct ...

dividend A dividend is a distribution of profits by a corporation to its shareholders. When a corporation earns a profit or surplus, it is able to pay a portion of the profit as a dividend to shareholders. Any amount not distributed is taken to be re-in ...

s, and

securities lending In finance, securities lending or stock lending refers to the lending of securities by one party to another. The terms of the loan will be governed by a "Securities Lending Agreement", which requires that the borrower provides the lender with c ...

fees. This contrasts with the

price return The price return is the rate of return on an investment portfolio, where the return measure takes into account only the capital appreciation of the portfolio, while the income generated by the assets in the portfolio, in the form of interest and ...

, which takes into account only the capital gain on an investment. In 2010 an academic paper highlighted this issue found with most web charts in the 'compare' mode, and was published in the

Journal of Behavioral Finance The ''Journal of Behavioral Finance'' is a quarterly peer-reviewed academic journal that covers research related to the field of behavioral finance. It was established in 2000 as ''The Journal of Psychology and Financial Markets''. The founding B ...

. The discrepancy between total return charts and "price only" charts was later brought out in the Wall Street Journal. Stock and bond funds provide annual Total Return values summarizing the last ten years of operation. Total Return assumes that dividends and interest are reinvested in the funds. A reasonably accurate equation for the percent Total Return in a year of any security is the sum of the percent gain (or loss, a negative percent) over the year in the security value, plus the annual dividend yield expressed as a percent (100 × annual dividends divided by the security price at the beginning of the year). This slightly understates the Total Return because it ignores the reinvestment of dividends, as soon as they are paid, for purchasing more of the security. Professor Pankaj Agrrawal produced the ReturnFinder App to rectify the issue created by these web-charts, the App's algorithm includes dividends and bond income in the total return calculations. The problem can lead to the pernicious inversion of performance ordering with bond ETF's or stocks paying high dividends. A variant measure of total return is ''tax-adjusted'' or ''after-tax return'', which approximates the effective return that a tax-paying investor actually sees considering taxes paid on distributions.

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See also