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Year-End Review Of Dividend Growth Investing Vs Total Return Investing

At the end of 2010 I began studying a number of portfolios with my own money much like many others have done on Seeking Alpha and other locations. I have found that sometimes projecting too much of the past into the future can be a problem. Many very smart people such as John Bogle, Burton Malkiel, and many others have studied at length the fact that it is very difficult for anyone, over multiple decades to beat the market. It seems only natural that others will believe they can do better - this is in fact what makes "markets" in the first place: someone to buy what others are selling.

I also know that 3 or 4 years is not enough for a solid trend, but I have found in about 3 years you can start to see cycles, or reversion to the mean as John Bogle likes to call it.

This blog is in no way to condemn other investing methods, it is more just an educational journey to see, if held on equal footing, these market experts are correct in that it is very hard to obtain a long-term advantage in the market. If you somehow come up with an advantage, the market is not without intelligence and will quickly discount or correct for any inefficiencies.

The only current portfolio that is static in nature, with more than a year or two of history, is the one reported on by David Van Knapp (DVK). This is merely a chore to compare this one static dividend growth philosophy to other more traditional index portfolios. This is not an account that is being used for retirement, so the internal income generated is of no consequence. The metric of choice in this account in order to be able to compare it to other accounts and indexes is the total return, or more specifically the dollar value of the account. I believe the only trend line that may need some explanation is my 2-fund account started back on December 31 2010. This is an account started with roughly $10,000 and invested equally in two indexes; the equally weighted S&P 500 (NYSEARCA:RSP) along with the Vanguard Small Cap Index (MUTF:NAESX). The results of these comparisons are shown in the following chart. The results have been normalized so that the start of each line begins in sync with the DVK line since we have different starting times.

As might be seen there are certainly no clear winners and in fact, "reversion to the mean," may actually be seen where DVK relates to the RSP and my 2-index fund portfolio. Let's review in another 6 months and see where we are.

Disclosure: The author is long RSP, NAESX.