[tnicola]

S&P 500 Price has returned -1.5%/annum on price alone since 1999, while S&P 500 dividend return has been 4.9%/annum over the same period.

Longer term, since 1971, S&P 500 Price has returned 6.3%/an, while dividend has returned 5.6%/an.

So, yes, if you are a lucky soul who was 21 years old in 1971, bought the market, and held it to today, you would be slightly better off than you would be with dividend.

But what if you were a 45 year old in 1999 who started their retirement savings and are nearing retirement with over a decade of negative returns?

Time horizon and suitability of your choice are often more important than what you actually pick.

Having other people manage your finances may be problematic if the fiduciary responsibility has been misplaced as you have pointed out.

When you go to a lawyer or an accountant, you do not question their advice, largely because they have been positioned as a services experts rather than sales folk.

Properly diversified portfolio will carry you through the ups and downs in the market, because it hedges your risk against those fluctuations. And for that kind of portfolio, you need a bona fide, unbiased expert's advice. The kind of advice that is currently NOT available to mid-networth market, and the kind of advice that the rich are paying a premium to obtain.

The article pointed out that the financial services is broken and investing in broad index is a band-aid solution, but wouldn't it be more appropriate for us to have a solution that solves the problem rather than the one that patches it?

[aristidb]

What? Index funds don't steal the dividends from you, they contribute to the performance or are paid out.

Generally look at the performance index to evaluate returns, NEVER NEVER the price index, please.

The total return of the S&P 500 from January 1999 until now is 47.7%, or 2.91% per annum (EDIT: had incorrect numbers!). Not a good return, but you also picked one of the worst dates.

Please also note that the price and dividend returns ADD UP. You don't need to choose between one or the other.

[tnicola]

You are completely correct. You should always look at the performance. In fact, you should be focused on your own performance.

I was merely displaying the parts of that performance and illustrating that one part of it is far more volatile and the other is less so. Knowing that fact alone, if you had invested in divindend paying securities and focused on the cash flow of the economy, you would have been personally better off.

Not all stocks pay dividends. Not paying attention to that can bring you closer to the -1.5%/an and farther from 4.9%.

>>Not a good return, but you also picked one of the worst dates.

I have picked the current situation. We can talk about historical rosy times in the market, but that is somewhat beside the point. This is our current reality.

[aristidb]

With worst date i mean 1999. Well I guess 2000 would have been worse. It's a question of luck which date is good.

And no, picking the stocks with more dividend yield is NOT a strategy that is guaranteed to work, because these are usually low-growth companies. Now the market assessment of growth is unlikely to be right for all companies, but it's likely to be better than that of most people.

[T-hawk]

> S&P 500 Price has returned -1.5%/annum on price alone since 1999

This is a selective endpoint, creating bias in the result. 1999 was an outlier peak, so of course measuring from 1999 will show minimal returns. Measure from 1988 or 1995 or 2003 or any of the vast majority of possible years, and you'll see significantly positive return for stocks.

[clarky07]

I'd just like to note, that anyone who starts saving for retirement at 45 isn't likely to have a great outcome. If they started in 1999, yes they got a rough deal, but that's what happens when you start 25 years too late. Index fund or great advisor isn't the problem here.

[tnicola]

Not always. If you were 45 and entered the market in 2008, you'd be in a great shape now, probably better than a 20 year old who entered the market in 1999.

[runako]

This is only possibly true if the 20 year old made his sole contribution in 1999. The more reasonable case is the 20 year old made his first contribution in 1999, and now has 13 years of contributions plus gains.

It's highly unlikely that 3 years of gains from 2008-present would outstrip 13 years of contributions + gains + reinvested dividends.

[toddn]

The S&P 500 is not "the market". It's certainly a better representative of the U.S. market than the Dow Jones Industrial Index (which has just 30 stocks) but it has nowhere near as many stocks as the Wilshire 5000. Not to mention none of those give you any international exposure.

[caycep]

some thoughts:

isn't S&P index by definition diversified?

And the the other question is, yes the S&P had a rate of -1.5% but considering the crashes of the past decade, would you be lucky to achieve -1.5% return rather than something much, much worse?

[tnicola]

Yes, the S&P is diversified in the stock portfolios. What I meant was diversify into things like fixed income vehicles, first mortgage securities, real estate income trusts etc.

And yes again, most investors came out much worse over the past decade that -1.5%, but even the theoretical return is dismal enough to illustrate the point.

Negative returns, while a simple concept, can be a real jaw dropper for many a DIY investors. If you invest $100.00 and lose 10%, you'll have $90. But $10 out of $90 is 11%. So you'd need to return more in the positive just to make your money back. And the greater the negative return, the greater the positive required. If you lost 20%, you'd need 25% etc.