Although many sources will report that the S&P 500 returned -0.73% in 2015… if you include dividend reinvestment, the S&P 500 actually returned 1.19% in 2015.
Including dividends is the difference between reporting a negative return and a positive one.
Dividend Reinvested Returns Are Key!
As we point out every year, most financial publications will report a lower return on the S&P 500 than a buy and hold investor would actually experience. Most stories leave out the effect of reinvesting dividends and distributions - the act of buying more shares of a security when that security returns money to shareholders.
Logically, this doesn't make much sense - even if investors aren't reinvesting dividends, they aren't using their dividend checks to heat their homes by throwing them in a fire - making an attempt to account for dividends is a necessity. S&P Dow Jones Indices, the owner of the S&P 500, publishes an index called the "S&P 500 Total Return Index" specifically for this purpose. The S&P TR reports how investors would have performed had they immediately reinvested dividends.
We maintain two calculators which do the math for you with monthly resolution:
S&P 500 Dividend Reinvestment Calculator
This one reports how the index (or a lump-sum investment) would have returned based on buyng and selling in months you choose.
S&P 500 Periodic Reinvestment and Dividend Calculator
This calculator builds on the first calculator and lets you try to model the effect of taxes and periodic reinvestments in the S&P 500, also with a monthly resolution.
The S&P 500's Wild Ride in 2015
You can find some historical data on the S&P 500 and the Total Return counterpart at MarketWatch. Here's how the two indices look like on the same chart:
|01/01/2015 Open||12/31/2015 Close||Annual Return|
|S&P 500 Total Return||3776.49||3821.61||1.19%|
|S&P 500 Index||2058.9||2043.94||-0.73%|
So, there you have it - simply choosing how to report the index's returns made a massive difference this year, literally the difference between making and losing money. Since the psychological difference of a loss with even a small gain is so great, we hope you'll agree with our assessment - you need to account for those dividend checks!
For those of your with a crystal ball or a need to answer some questions, chew these ones over:
- Where will the S&P 500 go from here?
- Are you a dividend reinvestor? A dividend spender? A user of dividend checks to heat your home?