camistocks (80.10)

The S&P 500 adjusted for inflation and dividends

October 25, 2007 – Comments (1)

First thanks very much to the Motley Fools for featuring me on the CAPS front page! More than 20 recs and almost 300 page visits (according to my counter) definitely show the power of a good pushing up! I have to say I got this feeling of uncertainty, it gave me a "writer's blockade" for being so exposed...  But I feel better now, a few weeks later... ;-)

OK, let's go! In the last post, I showed the vast outperformance of gold vs. the DOW since 2000. To be fair, dividends were NOT included, so let's make good on this!

An Argentinian company specialized on ETFs has made a chart comparison/analysis of the S&P 500 over 50 years including and excluding dividends. But all of this inflation adjusted too, no less;-) Please read the article (after mine, of course...).

First, the total (nominal) return vs the dividend adjusted return (=dividends are reinvested again). According to Standard and Poors about 40% of total return in the last 80 years is thanks to dividends. (Note: dividends in the past five to ten years have been much lower than the average. They used to be around 4% on average, but today they are less than 2%. Are they indicating expensive stocks?...;-)

Here's the chart:



According to the company, this strategy (reinvesting dividends) would have earned you about 8 times more than the nominal index performance. Well hmm not bad...

But this doesn't include inflation. Why not do this now?

So finally, the ultimate charts! I hope you can sleep tonight! Here are the dividend adjusted S&P500 vs. the nominal S&P 500, both including inflation:



to be continued with gold and so... :-)