Want to know
whether a mutual fund has gained or lost money over a certain
period of time - and how much the gain or loss was? The answer
is in a number called the "total return."
Total return is
made up of two things:
1. |
The change in the price of the shares you own |
2. |
Money (such as dividends) that the fund earns from its
investments and passes along to shareholders. |
Let's say you
bought 100 shares of the Wise Investor Fund for $10 each. Your
shares would have been worth $1,000 all together (100 x $10 =
$1,000). If the fund's total return for the next 12 months was
5% (which is also written 0.05), your investment would be
worth an additional $50 (0.05 x $1,000 = $50), or $1,050. Of
course, in this example, it's assumed that you didn't sell any
shares of your original investment.
But returns don't
always go up. Sometimes, you can lose money on an investment.
What if the total return for Wise Investor Fund was negative
4% (-4%)? Those same 100 shares that were worth $1,000 would
decrease in value by $40 (0.04 x $1,000 = $40). This would
leave you with $960. Total return can positively or negatively
impact your investments.
Once you know a
fund's total return, you can compare it with the return for a
market index (such as the S&P 500 Index) to see how well the
fund did versus a larger group of stocks or other investments. |