The Efficiency of Total Return Investing

Published On: June 17, 2026

Written by: Ben Atwater and Matt Malick

It is common for investors to mentally bifurcate a portfolio into “income” (dividends and interest) and “growth” (price appreciation). However, this distinction is often more psychological than financial. To maximize terminal wealth, we prioritize total return.

Total return measures the full power of your capital over time. It is the sum of every dollar an investment generates, regardless of how it arrives.

The portfolio does not care if a dollar comes from a dividend check or a share price increase. By focusing on total returns, we avoid the “yield trap” – the tendency to chase high-income assets that suffer from eroding principal.

The primary advantages of a Total Return approach for high-net-worth individuals are diversification, flexibility, and tax management.

● Selective Realization: Rather than purely accepting forced liquidity through dividends, we generate cash flow by strategically selling specific “lots.” By identifying shares with the highest cost basis, we can create custom liquidity with minimal tax impact. Dividends are still vital, but current market yields themselves cannot support the income stream most retirees need without falling into a yield trap.

● The “Homemade Dividend”: If a portfolio grows by 8% but pays no dividend, we can liquidate 4% to meet lifestyle needs. This “homemade dividend” allows the remaining capital to continue compounding efficiently, sometimes with a lower tax drag than a mandatory cash distribution. Of course, our portfolios pay dividends and interest, but this thought experiment creates a clear picture of how total return works.

● Strategic Tax Loss Harvesting: We use market volatility to our advantage. By harvesting losses in one area of the portfolio, we can offset realized capital gains elsewhere, or build carry-forward losses, to effectively “cleanse” the portfolio of tax liabilities whenever possible. The longer one is invested, and the more embedded gains one has, the more difficult this exercise, but we are always on the lookout for tax loss harvesting.

● Asset Location Optimization: We prioritize tax-efficient growth in taxable brokerage accounts – utilizing long-term capital gains rates (capped at 20% plus the 3.8% NIIT) – and tend to resist realizing taxable gains when possible. Whereas we can be nimbler in tax-deferred accounts like IRAs where capital gains are not an issue.

Unlike interest or dividends, which are taxed in the year they are received, capital appreciation is only taxed upon sale. This allows us to realize gains when it may be preferable based on your overall tax situation.

We view dividends as just one tool in the shed, not the foundation of the house. By managing total teturn, we shift the focus from “collecting checks” to “compounding wealth,” keeping you in more control of your liquidity and your tax liability.

Disclosure: Regulators could view this communication as marketing / advertising. This commentary is written by Ben Atwater and Matt Malick and reflects only their opinions and viewpoints. Atwater Malick, LLC sources facts, figures, quotations, etc. from what they believe are reliable sources, but they cannot guarantee their reliability. In addition, this essay makes no claims as to investment performance – past, present, or future. For additional important disclosures, please click here.