What is total return?

You hear that term all the time, but how is it any different from just regular old return on investment?

Well total return accounts for not only how much the price of your asset went up, but also how much income the asset yielded you while you were holding it.

Before we get into the teeth of this, and trust us -- you're going to get there so fast - let's relate this to something you're probably familiar with.

You just bought your first home (or you're planning to - congratulations).

You paid \$300,000 to own the home (yes, you borrowed money and didn't put down \$300, but let's keep this simple).

The home's value increases to \$500,000 ten years later.

But you took your vacations, left town, and left your house a bunch. While you did that you rented out your home to people. People rented for a collective 6 months over those 10 years and paid \$4,000 a month. \$4,000 times 6 is \$24,000 bucks.

So let's say in year ten you sell your house for \$500,000.

\$500,000 + \$24,000 = \$524,000.

\$524,000 minus \$300,000 equals your profit of \$224,000. That's a total return of 74%. Pretty good. \$224,000 divided by \$300,000 equals 74%.

Watch the video to see how that works when you buy stocks.

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