Investment return measures the gain or loss on an investment relative to the amount invested. The total return includes both capital appreciation (the change in price) and income received (such as dividends or interest payments). Understanding your total return gives you a complete picture of how your investment has performed.

The annualized return converts your total return into a yearly average, making it easy to compare investments held for different time periods. The formula is: Annualized Return = (Final Value / Initial Investment)^(1/Years) - 1. CAGR (Compound Annual Growth Rate) uses the same formula but typically considers only the price change, excluding dividends.

For example, if you invested $10,000 and it grew to $18,000 over 5 years while earning $1,200 in dividends, your total return is $9,200 or 92%. The annualized return with dividends is approximately 13.84% per year, while the CAGR based on price appreciation alone is 12.47%. The difference highlights how dividends contribute meaningfully to long-term wealth building.