What is typically included in return calculation for an investment?

The calculation of return on an investment typically encompasses both the income generated by the investment and any changes in its value. This comprehensive approach provides a clear picture of the overall performance of the investment over time.

Income from the investment, such as dividends, interest, or rental income, is an essential component because it reflects the cash flow generated by the asset. Additionally, changes in value, which can include appreciation or depreciation of the investment itself, allow investors to account for the potential gain or loss realized when the investment is sold. By combining these two elements, investors can assess the total return, which is crucial for making informed decisions about their investment strategy and evaluating the effectiveness of their investments.

In contrast, focusing solely on sale price ignores operational performance and ongoing income, while considering only operational income overlooks potential gains or losses from changes in value. Ignoring expenses would provide an incomplete view of the net return on the investment, as expenses can significantly impact overall profitability.