What Is a Total Return Index?

A total return index is a type of equity index that tracks both the capital gains as well as any cash 澳洲幸运5开奖号码历史查询:distributions, such as dividends or interest, attributed to the components of the index. A look at an index's 澳洲幸运5开奖号码历史查询:total return𓆉 displays a more accurate representation of the index's performance to shareholders.

By assuming 澳洲幸运5开奖号码历史查询:dividends are reinvested, it effectively accounts for those stocks in an index that do not issue dividends and instead reinvest their earnings within the underlying company as 澳洲幸运5开奖号码历史查询:retained earnings. A total return index can be contrast☂ed with a price re🌺turn or nominal index.

Total Return Indexes Explained

A total return index may be deemed more accurate than other methods that do not account for the activity associated with dividends or distributions, such as those that focus purꩲely on the annual yield.

For example, an investment may show an annual yield of 4% along with an increase in share price of 6%. While the 澳洲幸运5开奖号码历史查询:yield is only a partial reflection of the growth experienced, the total return includes both yields and the inc🌼reased va🥃lue of the shares to show a growth of 10%. If the same index experienced a 4% loss instead of a 6% gain in share price, the total return would show as 0%.

Example: The S&P 500

The S&P 500 Total Return Index (SPTR) is one example of a total return index. The SPTR is different from the 澳洲幸运5开奖号码历史查询:standard S&P Index (SPX), which does not include dividend gains. The total return indexes follow a similar pattern in which many 澳洲幸运5开奖号码历史查询:mutual funds operate, where all resulting cash payouts are automatically reinvested back into the fund itself. While most total return indexes refer to equity-based indexes, there are total return indexes for bonds that assume that all coupon payments and 澳洲幸运5开奖号码历史查询:redemptions are reinvested through buying more bo🔯nds in the index.

Other total return indexes include the Dow Jones Industrials Total Return Index (DJITR) and the 澳洲幸运5开奖号码历史查询:Russell 2000 Index.

Differences Between Price Return and Total Return In🎉dex Funds

Total returns stand in contrast to price returns, which do not take into account dividends and cash payouts. Including dividends makes a significant difference in the return of the fu✤nd, as demonstrated by two of the most prominent.

For instance, the price return for the SPDR S&P 500 ETF (SPY) since it was introduced in 1993 was 789% as of March 10, 2021. The total return price (dividends reinvested), however, is close to 1,400%. The Dow Jones Industrial Average ove🌄r the 10 years ended in March 2021 had a price return of 1꧂62%, while the total return rose to 228%.

Understanding Index Funds

Index funds are a reflection of the index they are based on. For example, an 澳洲幸运5开奖号码历史查询:index fund associated with 🐲the S&P 500 may have one of each of the securities included in the index, or may include securities that are deemed to be a representative sample of the ind🌸ex’s performance as a whole.

The purpose of an index fund is to mirror the activity, or growth, of the index that functions as its benchmark. In that regard, index funds only require passive management when adjustments need to be made to help the index fund keep pace with its associated index. Dueღ to the lower management requirements, the fees associated with index funds may be lower than those that are more actively managed. Additionally, an index fund may be seen as a lower risk since it provides for an innate level of diversification.