One purchase at $100, one sale at $110 and a $2 cash distribution in between is a +10 percent, +12 percent or +9.90 percent result, depending on which cash is counted and which denominator is used. All three are correct arithmetic on the same record, so a return figure is unusable until its basis is written down. The condition that moves the number furthest over time is cost: FINRA's fees and commissions page puts a 1 percent annual fee for 20 years on a $100,000 investment earning 4 percent at $28,000.

Six labels make a percentage comparable

A percentage needs a starting value, an ending value and a statement of what sits between them. Write six fields before two figures are set against each other: the exact subject, the start and end dates, the observation type, the currency, the treatment of distributions, and the costs included. "One year" is incomplete until both dates are named.

The subject field does more work than it looks. Investor.gov's index funds page states that a market index measures a basket meant to represent a sector or an economy, that you cannot invest directly in a market index, and that an index fund tracks one and provides an indirect route. That same page lists what pushes a fund below its index: fees and expenses, trading costs, and tracking error from holding only a sample of the securities in the index.

Example: one record, three defensible percentages

Example with illustrative amounts, since a personal record carries no public figure. One share is bought for $100 and sold for $110. It pays a $2 cash distribution that is held as cash and not reinvested. An explicit $1 fee applies on the purchase and $1 on the sale. Nothing else happens.

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QuestionCalculationResult
How much did the price change?($110 − $100) ÷ $100+10.00%
What was the gain including the distribution, before fees?($110 + $2 − $100) ÷ $100+12.00%
What was the gain after fees, on the full $101 outlay?($110 + $2 − $1 − $101) ÷ $101+9.90%

Check the last line in dollars: $110 in proceeds less the $1 sale fee is $109, plus the $2 distribution is $111, against an outlay of $100 plus the $1 purchase fee, or $101. The difference is $10, and $10 ÷ $101 is 9.90 percent. Three headline numbers, one set of cash flows, and a published total return would differ again because most assume distributions are reinvested.

A 1 percent annual fee is $28,000 over 20 years

FINRA's fees and commissions page sorts costs into three groups: transaction costs such as commissions, markups and spreads and mutual fund sales loads; advisory fees, including asset-based fees charged whether or not anything trades; and ongoing expenses such as annual operating expenses and account administration fees. Its worked figure is the one above: 1 percent per year for 20 years on $100,000 earning 4 percent costs $28,000.

That arithmetic is why a before-cost benchmark and an after-cost account result answer different questions. Subtracting a cost twice is the mirror error. A published fund return already reflects the fund's operating expenses, so deducting the expense ratio again produces a number that describes nothing. The categories on a broker's own document are read in how to read a brokerage fee schedule.

Index level, NAV and fill are three observations

The SEC's ETF bulletin states that an ETF's market price typically will be more or less than the fund's NAV per share, a premium or a discount, because the market price fluctuates during the trading day. The bulletin's own spread example is an ETF quoted $59.50 bid and $60.00 ask: buying 200 shares at $60.00 and selling them immediately at $59.50 loses $100 on the spread alone.

So a fund's published NAV change and a shareholder's result from actual fills are not the same measurement, and the layers behind that gap are laid out in an index is a measurement; an ETF is a product. Where one figure uses a base that another does not, why a 20 percent loss needs a 25 percent recovery shows how far apart two true percentages can sit.

Source references

Primary sources used for this guide. Follow the links for the original scope, definitions and conditions.