Getting regular paychecks with virtually no work is a pretty great thing, and sometimes owning stocks, mutual funds, and ETFs can give you the right to receive these dividends. However, I have seen pitches where these payments are neglected. This post will share some ways to check if dividends have been included in a report.
Example of the Importance
In the image below you can see the return of a common S&P 500 ETF with dividends reinvested versus the price movement only. If you don’t factor in dividends it it looks like a $10,000 investment would have only grown to $38,650, but if dividends where reinvested it could have grown to a whopping $53,990. So they are very important to consider.
I have frequently seen gold, silver, and life insurance sales pitches compare performance versus the S&P 500 and not include dividends! That is like bragging about winning a race while only running half the distance of the other runners. I am not saying gold and silver are inherently bad investments.
A dear friend of mine recently asked my opinion of a gold website. On the front page at the times it said, “Because it is a competition…and we are keeping score” then proceeded to show the performance of the stock market without dividends included. Again it is like only recording 80% of the other teams actual points!
The image from the website in questions below shows a 62% return for the S&P 500. The return over that same period with dividends reinvested would have been about 72% as shown here!
- Dividends are important and should be factored into any analysis regardless of the time period covered.
- Not paying dividends doesn’t inherently make an asset bad.
- If you want to analyze things like this on your own, ETFreplay.com and portfoliovisualizer.com are great free services.
- Clients of Tines Capital can readily compare the performance of their accounts against the S&P 500 by using the PortfolioAnalyst functionality. Tutorial Video
- If you need help Tines Capital or another fee-only advisor from XYPlanning Network are great places to start.