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Financial Terms and Glossary

Returns

Returns

Returns refer to the gain or loss generated by an investment over a specific period, typically expressed as a percentage of the initial investment. Returns can come from various sources, including capital appreciation (increase in the value of the investment), dividends, and interest. Returns are a key measure of an investment's performance and are used to compare different investments or asset classes. Investors seek higher returns as compensation for the risks they take.

Example

An investor purchases a stock for $1,000 and sells it for $1,200 after one year, realizing a 20% return on their investment.

Key points

• Refers to the gain or loss generated by an investment over time.

• Includes capital appreciation, dividends, and interest.

• A key metric for assessing investment performance and comparing asset classes.

Quick Answers to Curious Questions

What are the common sources of returns in investing?

Returns can come from capital appreciation, dividends, and interest income.

How do investors use returns to evaluate investment performance?

Investors compare returns across different investments to assess their profitability and risk-adjusted performance.

What is the relationship between risk and returns?

Higher returns are typically associated with higher risk, as investors demand compensation for taking on additional risk.

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