## What is 'Cumulative Return'

A cumulative return is the aggregate amount an investment has gained or lost over time, independent of the period of time involved. Presented as a percentage, the cumulative return is the raw mathematical return of the following calculation:

(Current Price of Security) - (Original Price of Security) / (Original Price of Security)

Investors are more likely to see a compound return than a cumulative return, as the compound return figure is annualized. This helps investors compare different investment choices.

## BREAKING DOWN 'Cumulative Return'

A common way to present the "effect" of a mutual fund's performance over time is to show the cumulative return with a visual such as a mountain graph. Investors should check to confirm whether interest and/or dividends are included in the cumulative return; such payouts may be assumed to be reinvested or simply counted as raw dollars when calculating the cumulative return. Any marketing material for a mutual fund or similar investment should state any assumptions clearly when presenting such performance data.## Cumulative Return vs. Total Return

The cumulative return of a stock that does not have a dividend is easily calculated by figuring out the amount of profit or loss over the original price. For example, investing $10,000 in Johnson & Johnson for a 10-year period ending on Dec. 31, 2015, results in is $48,922. With no dividends reinvested, this is a total cumulative return of 697.99% or an average of 10.94%; it also includes two stock splits. The value of dividends received during that time period also adds another $13,611 in profit above the original investment.

Calculating the cumulative return for a stock that reinvests dividends is much more difficult. However, reinvesting dividends often leads to better long-term results. In the same scenario of $10,000 being invested in Johnson & Johnson, reinvesting the dividends nets a total value of $75,626. It is important to note that cumulative return could be misleading in this scenario because the reinvested aggregate amount is more than the previous example, where the total between the principal of $48,922 and dividends not invested of $13,611 is $62,533. Reinvesting the dividends increases the investorâ€™s cost basis and reduces cumulative return. For the reinvested example, the stockholderâ€™s cumulative return is 656.26% or an average of 10.64%. When compared, the reinvested amount has a lower cumulative return but really yields more total dollar amount for the investor, with an additional $13,093.

Mutual funds are also calculated in a similar manner. Many mutual funds pay dividends, and reinvesting them is very popular. One notable difference between mutual funds and stocks is mutual funds sometimes distribute capital gains to the fund holders. This distribution usually comes at the end of a calendar year and consists of the capital gains the portfolio managers made when closing out holdings. Mutual fund owners have the option to reinvest those capital gains, which can further make calculating the cumulative return more difficult.