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Total Return: What does it really mean? |
Mark Meyerowitz,Owner,
Meyerowitz Investment Management
Mr. Meyerowitz has been investing since high
school, in the 1970s.
After graduating from Brandeis University in 1977; Mark built up his small family business into a large local retailing company.
From the mid 1990s to early 2003, Mark was a broker with Smith Barney and with Edward Jones; two of the largest invest firms in the nation.
Mark and his family have lived in West Orange, NJ since 1987.
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 "Total
Return". Nearly every mutual fund investor has seen the term,
but few have checked out what it means. "Total return" is
exactly what it says it is: the final return you receive after
factoring in dividends, gains or losses, into your equation.
For example, you own a stock that pays a 3% cash dividend
for the year. During the year, the share price of the stock
went from $40 to $50. That $10 gain represents a return of
25%. To find the total return, you simply add the 3% dividend
to the 25% stock gain, for a total return of 28%. If you received
your 3% dividend, but the stock went down by 25%, your total
return would be plus 3% minus 25%, or minus 22%.
The mutual fund industry likes to use total return figures
in their promotions. While it is a nice number to know, an
investor really needs to know the breakdown of the numbers.
How much came from income and dividends, and how much came
from growth or depreciation. This is important, because if
you are an income investor, you will want to buy a fund with
a decent dividend.
If you are a growth investor, you may want to avoid a fund
with stocks that pay a strong dividend, as the stock portfolio
may not grow as quickly as a non-dividend paying stock portfolio.
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