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Comment by trashtester | Hacker News Reader

I think you reference only considers the index adjusted for inflation, but without taking the dividends into account.

Optimists tend to consider the dividends too small to matter when buying stocks, but it turns out that over time, the dividends tend to be a large part of the inflation adjusted returns:

According to this article [0], the profit of investing just before the .com bust would be only 12.9% by mid 2017, which is about 0.7%pa, if adjusting for inflation but not dividends.

When taking dividends into account, that grows to 54.5%, or 2.54%, more than 3x more.

And this is more or less the worst case based on recent history.

[0]: https://finance.yahoo.com/news/inflation-adjusted-returns-si...

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People (and tool developers) forget that the purpose of a stock is to ultimately produce dividends. It is like buying a house for rental income and forgetting to include the rent.

When I retired I had to switch from a growth-stock mindset to an income-stock mindset. I have made the switch but none of the free tools makes that easy. The closest I came was TOS will do this calculation for stocks but not ETFs. Oh well. I now have all the calculations in google sheets.

I also now have a backtest that goes the the beginning of the Clinton administration to the end of the Trump administration. I added dividends to the backtest. I only went to the Clinton administration so that I could use ETFs to simplify the calculations. The backtest includes dividends - which I had to add manually.

Out of curiosity: How do you test your sheets? I feel like I can arrive at such a sheet over a few days of reading, but unsure how I'd test I'm doing the right things (since there isn't a tool or a combination of tools that can act as oracle)

I used ETFs (and not stocks) to simplify the test. I was mostly looking for correlations of different investments across different scenarios. I then looked at severe market downturns to see how the correlations changed.

As you can imagine - when there is a severe market drop, most investments are highly correlated to the S&P. The most negative correlation I could get was medium term bond ETFs. Short term bonds were still highly correlated and I am not sure why.

The dot com bust was particularly interesting because each segment dropped at different times. Telecom dropped first, then tech. It took about a year for the drop to hit mid cap. In comparison - the 2008 crash hit everything quickly.

Also - lately I have been using the backtesting tools in TOS. As I said earlier, this only works for stocks and not ETFs.

gotcha, thanks for answering!

If you are using google sheets you can use ycharts to pull in the dividend data. Here is my calculation to get 1 year of dividends.

=query(importhtml(concatenate("https://ycharts.com/companies/",$A4,"/dividend"),"table",0),...)

where $J$2 is ="select Col6 where Col1 > date '"&TEXT(I2,"yyyy-mm-dd")&"' LIMIT 12"

>People (and tool developers) forget that the purpose of a stock is to ultimately produce dividends.

It would be more accurate to say that they distribute profits back to shareholders. Buying shares back is equivalent to dividends. What's questionable are attempts to borrow money to boost the stock price as those then generate a hype cycle which lets the company sell its shares back for a profit which is exactly backwards to how it should work.

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