Why I LOVE Dividends and Can’t Stand Index Annuities (2018)
Does active management earn its fees in down markets?
In this episode we analyze the performance of the Growth Fund of America from American Funds vs. Vanguard S&P 500, Vanguard Total Stock and Small Cap Index.
In up years the SP 500 smoked the Growth Fund. But that’s okay right? After all it’s the down market that active funds outperform.
Nope. Not even close.
Similar down market declines. A whole lot less upside in rising markets for active funds.
Should Growth Fund of America be my proxy? Why not? it was HUGE not too long ago. If memory serves GFA was the largest fund in the world at one point a few years ago.
In the huge decline of 2007-2009, GFA was down 50% as was the index funds. But active management is supposed to keep that from happening.
Not this time.
So, if the Growth Fund of America can’t outperform with it’s low expense ratios and low turnover, what’s the likelihood other funds can???
Hard to see that happening.
Dividends historically have accounted for nearly 40% of a portfolio value’s growth.
Even with the low dividend yields today, dividends still play a HUGE role in growing the net worth for investors.
In this video I show you exactly how dividends improved the performance of the Vanguard S&P 500 fund (VFINX) by 50% from 2003 until March 2018.
I compare the PRICE ONLY performance of the VFINX to the price + dividend performance.
Price only performance increased an initial $100k investment to $297k. Yet, dividend reinvestment increased that $100k to $406k at then end of those 15 years time.
Don’t forget this is in a low dividend yield environment too. In fact, after 2008 many of the higher dividend paying companies, banks come to mind, STOPPED even paying dividends.
Yet, the numbers speak for themselves; Dividends added 50% more growth than just price.
The interesting thing is that if you look at index annuities, they don’t use dividends in the returns investors get! Add on the hefty fees and it’s next to impossible for an investor to get anywhere near a market like return. Just can’t happen.
No dividends PLUS high fees = VAST under performance. Which is why I recommend staying away from these types of “investments”.
If you want “safety” there are better alternatives.
If you want “growth” there are better alternatives.
If you want a combination of some safety and some growth there are better alternatives. In future video’s I’ll discuss the alternatives.
But for now, just watch this video and allow me to show you EXACTLY how dividends are just so important to your financial well-being.