The word "return" hides several different numbers. If you don't know which one someone is quoting, you can be quietly misled. This guide untangles the most common ones.
Total Return vs Price Return
Price return is just the change in price. Total return includes dividends and distributions reinvested. For dividend-paying stocks the gap is enormous — a chunk of the S&P 500's long-term return comes from reinvested dividends.
Annualized Return (a.k.a. CAGR)
A 50% gain in 2 years isn't the same as a 50% gain in 10 years. Annualizing puts every return on a level playing field. The formula is CAGR = (End / Begin)^(1/years) − 1. Plug your numbers into the CAGR Calculator.
Real vs Nominal Return
A 7% nominal return when inflation is 3% is really 4% in purchasing power. Long-term planning should be done in real dollars, not nominal.
After-Tax Return
For a taxable account, every dollar of dividends and short-term gain is taxed at your ordinary rate. Long-term capital gains get a discount. A "10% return" can be 7% after taxes — or higher if it's inside a Roth IRA.
Risk-Adjusted Return
Two investments returning 10% are not equivalent if one swings 5% a year and the other swings 30%. The Sharpe ratio expresses return per unit of volatility. A higher Sharpe ratio means a smoother ride for the same return.
Putting It Together
When comparing investments, ask: total or price? Annualized or cumulative? Real or nominal? Before or after taxes? The honest answer is almost always lower than the headline.
Use our ROI Calculator to compute both total and annualized return on any holding, and the Compound Interest Calculator to project realistic long-term outcomes.
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