Return

Return is one of the most important metrics for investors. It indicates the total return on an investment relative to the capital invested and is typically expressed as a percentage per year. While interest describes only the compensation for borrowed money, return encompasses the total return, including capital gains and dividends, which can also be reinvested directly.

For securities, the gross return is the pure price gain plus dividends or coupons. Custody fees, transaction costs, and taxes (e.g., withholding tax) are deducted from the gross return to arrive at the net return.

The formula for calculating the gross yield is:

Gross yield (in %) = [Profit/invested capital - 1] x 100

The gross yield is important because it makes different investment forms such as stocks, real estate, or bonds measurable and comparable. It also allows for a risk assessment, as high expected returns are almost always associated with higher risk.

If you subtract inflation from the nominal return, you get the actual increase in purchasing power as an investor.

True Wealth enables its clients to display portfolio returns as both time-weighted and money-weighted returns. The individual multi-asset benchmark also provides a tool for comparing the return on one’s own portfolio – often diversified across multiple asset classes – with a theoretical benchmark.

In the following blog post, we explore this topic in more detail using concrete examples: Calculating Portfolio Returns.