Thread: What Is Cumulative Return?

Aggregate return on investment is the aggregate amount that an investment has gained or lost over time, regardless of the period of time involved. Presented as a percentage, the total profit is the raw mathematical coefficient of the following calculation:



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Expressed as a percentage, total return is the total change in the price of an investment over a set period of time - total return, not annual.

Reinvestment of dividends or capital gains of the investment affects its total return.

Aggregate rates of return on mutual, as a rule, omit the impact of annual cost ratios and other fees on the results of the fund.

Understanding the cumulative return

The total return on non-dividend shares is easily calculated by determining the amount of profit or loss above the initial price. For example, investing $ 10,000 in Johnson & Johnson (JNJ) over a 10-year period ending December 31, 2018, results in $ 48,922. Excluding reinvested dividends, this is a total income of 697.99% or an average of 10.94%; it also includes two split shares. The value of dividends received during this time also adds another $ 13,611 to the profit than the initial investment.

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It is much more difficult to calculate the total return on a stock that reinvests dividends. In the example above, "Johnson & Johnson" reinvested dividend networks totaling $ 75,626. The aggregate profit may be misleading in this scenario, as the reinvested aggregate amount exceeds the previous example, when the total amount between the principal amount of $ 48,922 and the unpaid dividends of $ 13,611 is $ 62,533.



Dividend reinvestment increases the investor's cost base and reduces the total return. For the reinvested example, the total shareholder return is 656.26% or an average of 10.64%. In comparison, the reinvested amount has a lower cumulative return, but actually gives more than the total amount of the dollar for the investor, an additional $ 13,093.



Total profit and mutual fund

A common way to present the "effect" of the effectiveness of mutual funds over time is to show the total return with such clarity as a mountain graph. Investors should check whether interest and / or dividends are included in aggregate profits (say marketing materials or information accompanying the illustration); such payments can be considered reinvested or simply credited as raw dollars in the calculation of total income.

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One notable difference between mutual funds and stocks is that mutual funds sometimes distribute capital gains to fund owners. This distribution usually occurs at the end of the calendar year and consists of the profits received by portfolio managers at the close of shares. Mutual fund owners have the opportunity to reinvest those profits that may further complicate the calculation of total profits.



Total income versus compound return

Along with the total return, a mutual fund or other investment usually indicates its component return. Unlike the cumulative return, the complex figure is the annual return.

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While aggregate returns may seem impressive than the usually lower annual rate of return, they tend to omit the impact of annual costs on the returns that an investor actually receives. The annual costs that an investor can expect include total funds ratios, interest rates on loans, and management fees. If processed on a cumulative basis, these fees can be significantly applied in aggregate returns.

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