Capital appreciation vs. total returns
Capital appreciation is one of two main ways investors (hopefully) make money. As mentioned, capital appreciation occurs when an investment is worth more than you paid for it.
In addition to capital appreciation, investors can also get income from their investments. When it comes to the stock market, income is typically received in the form of dividends. Income can also come in the form of interest, royalties, or other types of payments.
Many investments don’t pay dividends or other distributions to investors, while others are more focused on generating income than producing capital appreciation. For this reason, simply looking at stock price performance over time isn’t the best way to compare the stocks you own. So, investors often look at the total return of an investment to make a fair comparison between investments with different focuses. A total return is the combination of dividends and capital appreciation. For a simplified example, if a stock rises by 6% in a year and pays a 4% dividend yield, it has a total return of 10%.