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What is Investment Return?
Investment return refers to the gain or loss generated by an investment over a specific period, expressed either in absolute terms or as a percentage of the original investment amount.
Definition
Investment return is the income or capital appreciation earned from an investment relative to the amount invested.
Key Takeaways
- Measures how much an investment has gained or lost.
- Can include income, capital gains, or both.
- Used to compare performance across investments.
Understanding Investment Return
Investment return captures the financial outcome of investing and is central to evaluating performance. Returns may come from income (such as interest, dividends, or rent), capital appreciation (increase in asset value), or a combination of both.
Returns can be measured over different timeframes and may be reported as nominal or real (adjusted for inflation). Investors often assess returns alongside risk to determine whether outcomes justify exposure.
Consistent return measurement enables benchmarking, portfolio optimization, and informed decision-making.
Types or Variations
Capital Gain: Increase in asset value.
Income Return: Earnings such as dividends or interest.
Total Return: Combination of income and capital gains.
Real Return: Return adjusted for inflation.
Formula
Investment Return (%) = (Ending Value − Beginning Value + Income) / Beginning Value × 100
Real-World Example
An investor buys shares for $10,000, earns $300 in dividends, and sells them for $11,200. The total investment return reflects both the price increase and dividend income.
Importance in Business or Economics
Investment return guides capital allocation, valuation, and performance evaluation. It helps investors and businesses compare opportunities, assess strategy effectiveness, and plan for long-term financial goals.
Related Terms
- Return on Investment (ROI)
- Total Return
- Risk-Adjusted Return
Sources and Further Reading
- Investopedia
- Organisation for Economic Co-operation and Development (OECD)
- International Monetary Fund (IMF)
Quick Reference
- Focus: Gain or loss from investment.
- Components: Income and appreciation.
- Use Case: Performance comparison.
Frequently Asked Questions (FAQs)
Is investment return the same as ROI?
They are closely related; ROI is a specific way of expressing investment return.
Should returns always be compared before inflation?
Real (inflation-adjusted) returns provide a more accurate view of purchasing power.
Can returns be negative?
Yes. A loss on an investment results in a negative return.
