Rate of return

Rate of return is an investment’s gain or loss over a period, expressed relative to its initial value. It can include income and changes in market value.

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Simple return: An investment’s percentage gain or loss over a period, calculated without compounding interim returns. This basic calculation expresses the change in value relative to the starting investment.
Initial investment: The money committed at the start of an investment or project. It provides the baseline against which the investment’s gain or loss is measured.
Portfolio performance measurement: The process of evaluating an investment portfolio’s results over a defined period. Portfolio managers use return measures to assess results and compare them with objectives.
Expected return: The probability-weighted average of possible future investment returns. It is a forecast based on outcomes, unlike a return calculated from realized results.
Compound interest: Interest earned on both an initial principal and previously accumulated interest. Reinvested returns can themselves earn returns, making compounding central to long-term growth.
Total return: An investment’s price change plus income, such as dividends or interest, over a specified period. It captures gains that a price-only measure leaves out.
Capital gain: A profit realized when an asset is sold for more than its purchase price. A change in asset value is one component of investment return.
Benchmark (finance): A standard, such as a market index, used to evaluate an investment’s performance. A portfolio’s return is often judged against a relevant benchmark return.
Yield (finance): Income earned from an investment, commonly expressed as a percentage of its price or value. Yield typically focuses on income, while total return can also include price changes.
Reinvestment risk: The risk that cash flows from an investment must be reinvested at lower rates than before. The realized return can fall when income or principal is reinvested at worse rates.