What does "total return" include?

Total return encompasses a comprehensive view of an investment's performance. It includes not only the capital gains realized from selling assets at a higher price than their purchase price but also the income generated from holding those assets. This income typically comes from dividends received from stocks and interest earned from bonds. By integrating both capital gains and income, total return provides a more accurate depiction of what an investor has earned over a specific period, allowing for a clearer assessment of overall investment success.

The other options are overly narrow in their definitions. Focusing solely on capital gains excludes vital income sources that contribute to an investor's overall financial gain. Limiting the consideration to the initial investment overlooks the dynamic nature of returns that can accumulate over time. Likewise, counting only dividends disregards any potential appreciation in value of the investment itself. Thus, the total return is best understood as a holistic measure combining all significant components of investment performance.