KEEP YOUR EYE ON THE TOTAL RETURN.

Some investors make the mistake of thinking that the change in price between the time they buy and the time they sell represents the sum total of how well or poorly their stocks perform. If a stock goes from $20 to $30, you’ve made $10 a share; if it goes to $15, you’ve lost $5 per share. That way of looking at investment results doesn’t go far enough.

The quickest way to recognize the shortcomings of looking only at price changes is to imagine buying a utility stock that pays a dividend of 6%. You buy it at $20 and hold it for a year, then sell it for $22. Was your gain limited to $2 a share? No, because you collected that 6% dividend, which amounted to $1.20 per share. Assuming you owned 100 shares for a year, you earned $120 in dividends, plus the $200 profit from the price increase. Thus your total return was $320. Expressed as a percentage of your purchase price, you made 10% on the price of the shares, but your total return was 16%.

Counting dividends (whether you receive them as cash or reinvest them in additional shares) and interest as part of your investment return is really the only accurate way to figure it, whether you’re dealing with stocks, bonds or mutual funds. Most compilations of investment results are compilations of total returns, and assume that earnings are reinvested in additional shares of the same investment and compound at the same rate.

On the other hand, forgetting to take commissions and taxes into account is a common way to overstate your profits.