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Comment by joosters | Hacker News Reader

You can't look at a chart of an index price and simply say "it's down from the peak, I would have lost money". If you do that, you are forgetting that stocks pay dividends, and they aren't included in the index price.

Instead, you should be looking at index tracking fund / ETF prices, which will include the value of dividends (and also account for fees).

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100%. European markets are known to pay out more dividends whereas the US market is known to prioritize stock price growth. Return-wise that makes no theoretical difference.

Makes a huge difference when considering the tax implications.

Many retirement funds are in a tax shelter either way, though.

Problem is, the US-based euro or emerging market fund will have withholding taxes applied to it, unless it’s a retirement-specific fund.

You just won’t see the tax withholdings on your statement because it shows up on theirs.

Many but not all and that is the important detail.

Also I keep money in index funds even if I don't plan on using that money for retirement. (e.g. downpayment on a house, saving for another large purchase, financial buffer, etc.) I also keep money in index funds that are in regular brokerage accounts because 401k + backdoor roth ira isn't sufficient for retirement if you make $200k+/yr. (True for even lower amounts too but whatever)

That depends on which country you live in. In my country (The Netherlands) you pay a fixed percentage of the value of your portfolio. Dividends are not taxed.

> Dividends are not taxed.

I wish.

But no, dividends are taxed:

https://www.belastingdienst.nl/wps/wcm/connect/bldcontentnl/...

What you probably miss is that dividend tax for non substantial holdings (less than 5% of the total stock) is withheld before being paid out.

and you have to care about where the index fund is domiciled. Otherwise you get dividend leakage. Some Vanguards are domiciled in Reland where 30% of dividends are withheld as taxes even though we need to pay just 15%. It might be difficult to get the difference back

Indeed it does. Here in Brazil, for instance, dividends are not taxed, while selling a stock (to take advantage of growing stock prices) has a capital gains tax of 15%.

That largely depends on the tax laws where you live.

Don't know why you're being downvoted; everything you've stated is true. I would just add that one should probably account for taxes. When taxes are involved: buybacks >> dividends.

If you hold your stocks in a tax exempt account then you don’t really care about this though.

Pension funds, ISAs in the UK, etc etc; most countries have something similar. The vast majority of individual savers will not exceed the limits placed on these accounts.

In Canada, it’s difficult/expensive to buy euro stocks or euro funds directly, so you end up buying a Canadian-domiciled or US-domiciled euro fund.

I wouldn’t be surprised if US retirement savers have the same issue.

While dividends from the etf are tax-free in a retirement savings, the dividends from the euro company are first paid to the etf, and the euro company still does tax withholding. From their point of view, they’re not paying out to a retirement fund.

Depends on the country. Some countries incentivize long-term ownership by taxing dividends at a lower rate than other capital gains. And in some countries, mutual funds don't pay taxes for (domestic) dividends.

This is due to the fact that European indices are heavily weighted towards stocks in low growth industries: banks, mining, utilities, cars, chemistry insurance. Lack of incentives in Europe has led to poor equity and economic growth versus the United States and this pattern will continue for decades to come.

And just a clarification that some (many) ETFs also distribute dividends on a quarterly basis as they accrue them from their holdings, so technically you want to be looking at the total return indices.

If you have a Bloomberg terminal, you can look up the corresponding total return indices. German DAX is a rare example of a total return index IIRC.

I don't think it changes his conclusions much, the indices can easily fluctuate by more than what you bank in dividends.

> If you have a Bloomberg terminal

Sorry, but I must point out that if you have access to Bloomberg terminal then it almost certainly implies that your full time job is market research & investment. A Bloomberg terminal costs between $20K - $24K per year.

Or you could be a university student, they sponsor terminals.

Many large university libraries will have a terminal if you know who to ask and where to look.

you can also search "total return" for the ticker, eg. https://www.google.com/search?client=firefox-b-1-e&q=SPY+tot...

Whenever I hear the words “Bloomberg terminal” I get a mental image of a VT-series CRT and keyboard connected to a distant mainframe sitting off to the side of a room full of traders with men in suits waiting their turn to type in their queries.

I’ve assumed that it’s actually just software these days but it turns out that it also requires a specialized keyboard (which includes biometric authorization based on my quick skim of the webpage). It’s apparently $2000/month which is probably reasonable for those who need it and also a clear indication that I don't need it.

A Bloomberg terminal runs a full-fledged GUI app [1]. It's true that it's very keyboard-focused (with terse text commands and shortcuts for everything), and most of us probably wouldn't describe it as flashy or even modern, but it's not a text mode terminal in the sense you're describing.

The core functionality — trading, charts, financial data, news — that the Bloomberg terminal provides traders is also available from places like Schwab (StreetSmart), TD America (ThinkOrSwim), and so on, but the Bloomberg terminal is just a lot more stuff.

Interestingly, one of the things that apparently add the most value (and which competitors struggle to disrupt) is the social networking built in that allows traders to chat and gossip with each.

[1] https://youtu.be/2ee-x6IXWK8

All accumulating ETFs track total return indices. They are not usually talked about so much, but all index providers have provide total return indices.

Hey, no one make a call! I'm going to log in to the Bloomberg terminal.

Expectations around dividends could be priced in though. https://www.investopedia.com/terms/d/dividendirrelevance.asp

> ... you are forgetting that stocks pay dividends, and they aren't included in the index price.

That depends of the index. The DAX, for example, has two versions: The performance index, which is usually quoted, includes dividends, the price index does not.

Raw mutual NAVs and ETF prices do not include dividends, and prices fall on ex-dividend dates, but you can often find dividend-adjusted NAVs and prices that do incorporate them.

Or just look at the TRIs (Total Return Indices)

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