The impact of dividends on the S&P 500 / SPY performance during bull and bear markets.

Do you forget to include the dividends you receive when you analyze your investing returns? You shouldn’t, because dividends can contribute significantly to your gains.

On TV and Internet, you hear all the time how much the stock market has gone up or gone down. They tell you how the Dow, NASDAQ or S&P 500 is doing compared to yesterday, the beginning of the year or last year.

These days you heard that the indices reached their lowest points in two years.

That is all fine and correct… but are you aware that all these numbers exclude the dividends that you as an investor receives when you invest in the funds that follow these indices?

And these dividends matter.

Dividends of 39%

Here are a few numbers:

Between February 1st 1993 and august 1st 2011, the S&P 500 gained 190%. That is excluding dividends.

When you include the dividends, the S&P 500 gave you for the same period a total return of 303%.

Or in other words… if the S&P 500 index would include the dividends from this 18 year period, it would be 39% higher than it is. This 39% is the money that investors have put already in their pocket. Therefore it is not included in the index anymore.

And what have the really smart investors done? They invested these dividends in the market as well and got a return on that as well. That are returns on returns on returns… and this is what makes investing in the stock market such an attractive opportunity. That is valid of course when you know when to start investing and when to get away.

More on Dividends

Dividends are also extremely important when you compare the returns of two different funds. A comparison that includes dividends may lead you to a different conclusion than a comparison that excludes them.

In the coming blog posts, I will tell you if high dividend funds are currently your best investment option and how high dividend funds perform during bull and bear markets.

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