Index Basics: Calculating an Index’s Total Return

Total return indices deserve more attention.  They more closely represent what an investor participant actually takes home: the return of an index, plus dividends paid and reinvested in the index.  Their better-known counterparts, which only track price changes in securities—often called “price return indices”1—get all the fanfare (see “Dow Hits 20,000 for the First Time”).  Total return indices, on the other hand, are often quietly downloaded and placed in a chart halfway through a financial advisor’s presentation.

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