See: Return. See: Rate on Return.
The financial press so easily ignores dividends and other side-element financial events that affect stock prices. You'll hear a lot of noise about the 1970s as having been "a lost decade" for investors, as the Dow or the S&P was "about the same price" in 1980 as it was in 1970.
But what about dividends? They were massive, by today's standards. They went from 4% to 6% to 8% to 9%...and, had you reinvested those divvys in the purchase of more stock, well, by 1990 or 2000, you'd have done seriously well.
So Total Return calculations take into account not just the compounding of the underlying index, but also the dividends and occasional other cash distributions that "come from nowhere"...like if a private company inside of a public market portfolio is sold for cash and that cash is distributed back out to investors, etc.
Makes the calculations more complex, but few investors are complaining.
Related or Semi-related Video
Finance: What Is a Real Return?67 Views
finance- a la shmoop. what is a real return? like is there a fake return? you
know like the news? well kinda .real return refers to an [man frowns talking to camera]
investment return mapped against inflation. so let's say you invest in a
bond that pays five percent a year for ten years and then pays you back your
principal .boring but nice- you know like a good doctor visit. your nominal return
over that period was 5% but since inflation was 3% a year during that
period on average your real return was only 2% a year- meaning that the
performance of your investment only eked out a 2% net gain against the price of [equation]
milk gas and you know knocked off iPhones. so don't be a chump who thinks
that they're making more money than they really are, and you know keep on keeping
it real. [man sitting in chair, talks to camera]
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