Total Return Definition

Total Return measures the true performance of an investment over a given period by combining:

• Capital appreciation (or depreciation): the change in the asset’s market price
• Income generated: dividends, distributions, interest, or any other cash payments received

Unlike current yield or price performance taken in isolation, total return reflects the actual wealth created (or destroyed) for the investor. It is the most comprehensive and honest measure of investment success.

Why Total Return Matters More Than Yield Alone

Income investors naturally focus on yield. However, a high yield can mask serious problems:

• Yield traps: A rising yield often signals a falling share price. Income appears attractive while capital is permanently lost.
• NAV decay: Some high-yield strategies (e.g. aggressive covered-call ETFs or certain closed-end funds) distribute generous income while their underlying asset value steadily erodes.
• Opportunity cost: An asset yielding 10% with a –5% annual capital loss delivers only a 5% total return — often inferior to a lower-yielding but growing investment.

In practice, cash flow feels good in the short term, but total return determines long-term outcomes. Sustainable income requires both distributions and capital preservation — or growth.