And over the long term, total return on stocks has consistently outpaced total return on other types of securities. This illustrates the importance of total return in developing an equity portfolio, and underscores the importance of compounding. Total return can also be used to select bonds. Municipal bonds, for example, offer both fixed income in the form of tax-exempt interest payments, and the potential for capital appreciation, since when interest rates drop, bond prices increase. However, while the interest is tax-exempt, appreciation in the bond's price, like any capital gain, is taxable.
Many investors consider only the tax-exempt interest when they think of municipal bonds.
While it would seem that the idea of total return is all too obvious, it is often neglected as the best way to judge an investment. Although other measures of return do have a bearing on one's judgment of an investment, for most of us total return is the most telling. And that's the big picture. 2001 First Union Securities.