Yes, I nod. However, this becomes a huge problem over time.and technology do Now it exists to demonstrate the real all-in return. The problem is, if we switched to such coverage, the average American’s head might explode.This is because, including reinvested dividends since 1987, the Dow Jones Industrial Average is now 95,604. It’s not a joke. The provider himself is on his website. Almost 100,000 people! And S&P is not 5127 today; 11,152.
Well, this is just a stupid thought experiment, but you say However, Germany has already been reporting this way for several decades, based on total returns and not just on a price basis. DAX was switched in his 1987 year. Mark Hebner, CEO of Index Fund Advisors, has created a useful interactive chart (his #7 in this chart). From here we can see that the German market is doing quite well (outperforming all markets except the US). Until I switched the other things to Total Return. It will then be followed by Australia, the Netherlands, Ireland and even France. I don’t know why these countries don’t switch their reporting too.
In short, If you own a major US index, actually It’s been even better than you think over the years. This has great significance. That means, for example, your money will do better in bonds than stocks, more than you think. (Curious note: researchers Samuel Hertzmark and David H. Solomon think this also explains the stock return premium. Read their paper for more details.)
It also means an active manager, mutual fund, or hedge fund. Performance may not be as good as you think If you are comparing performance only to a price index. Because funds typically follow performance, it can even mean that funds that appear to be “winning” are getting flows that don’t benefit them.
However, it also means that failing to reinvest dividends is a huge problem. All of this stems from the fact that when a stock goes ex-dividend, its price falls. The day did not “lose value” or end in a “deficit” because of actual economic changes. We simply reduced the price to reflect the amount of cash paid. However, if we do not include the amount of cash paid, the price index will be lower than reality.
And if you not only include dividends but also reinvest them, your total return over the long term will skyrocket. Hertzman and Solomon note that the Dow may be further north than expected. 672,000 If we had included the total profits from 1926 up to this point. Probably that’s crazy. Or maybe it’s strange that they haven’t reported on a total return basis for so long. As these authors point out, to help the public withstand change, they “harmonize” the total return index to today’s current price levels of the Dow and S&P, and then calculate future total returns. You can also report it.
In any case, if you like the sound of this, Hebner has a petition you can sign here. Either way, you can probably sleep a little better knowing that you may have been doing better in the market than you thought.
see you tomorrow!
kelly
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