5 ms·

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 pa

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).

MacroChip 5y ago
Expectations around dividends could be priced in though. https://www.investopedia.com/terms/d/dividendirrelevance.asp https://www.investopedia.com/terms/d/dividendirrelevance.asp
cissou 5y ago
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.
- gargarplex 5y ago
  Makes a huge difference when considering the tax implications.
  - fennecfoxen 5y ago
    Many retirement funds are in a tax shelter either way, though.
    - Scoundreller 5y ago
      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.
    - bradlys 5y ago
      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)
  - tut-urut-utut 5y ago
    That largely depends on the tax laws where you live.
  - evandijk70 5y ago
    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.
    - jacquesm 5y ago
      > Dividends are not taxed. I wish. But no, dividends are taxed: https://www.belastingdienst.nl/wps/wcm/connect/bldcontentnl/belastingdienst/zakelijk/winst/dividendbelasting/dividendbelasting 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.
      - yread 5y ago
        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
  - cesarb 5y ago
    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%.
- cosmojg 5y ago
  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.
  - pja 5y ago
    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.
    - Scoundreller 5y ago
      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.
  - jltsiren 5y ago
    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.
- someelephant 5y ago
  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.
Bostonian 5y ago
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.
rokobobo 5y ago
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.
Archelaos 5y ago
> ... 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.
lordnacho 5y ago
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.
- vishnugupta 5y ago
  > 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.
  - lordnacho 5y ago
    Or you could be a university student, they sponsor terminals.
  - gruez 5y ago
    you can also search "total return" for the ticker, eg. https://www.google.com/search?client=firefox-b-1-e&q=SPY+total+return https://www.google.com/search?client=firefox-b-1-e&q=SPY+tot...
  - twobitshifter 5y ago
    Many large university libraries will have a terminal if you know who to ask and where to look.
- dhosek 5y ago
  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.
manojlds 5y ago
Or just look at the TRIs (Total Return Indices)

MacroChip 5y ago

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

cissou 5y ago

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.

gargarplex 5y ago
Makes a huge difference when considering the tax implications.
- fennecfoxen 5y ago
  Many retirement funds are in a tax shelter either way, though.
  - Scoundreller 5y ago
    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.
  - bradlys 5y ago
    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)
- tut-urut-utut 5y ago
  That largely depends on the tax laws where you live.
- evandijk70 5y ago
  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.
  - jacquesm 5y ago
    > Dividends are not taxed. I wish. But no, dividends are taxed: https://www.belastingdienst.nl/wps/wcm/connect/bldcontentnl/belastingdienst/zakelijk/winst/dividendbelasting/dividendbelasting 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.
    - yread 5y ago
      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
- cesarb 5y ago
  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%.
cosmojg 5y ago
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.
- pja 5y ago
  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.
  - Scoundreller 5y ago
    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.
- jltsiren 5y ago
  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.
someelephant 5y ago
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.

Bostonian 5y ago

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.

rokobobo 5y ago

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.

Archelaos 5y ago

> ... 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.

lordnacho 5y ago

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.

vishnugupta 5y ago
> 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.
- lordnacho 5y ago
  Or you could be a university student, they sponsor terminals.
- gruez 5y ago
  you can also search "total return" for the ticker, eg. https://www.google.com/search?client=firefox-b-1-e&q=SPY+total+return https://www.google.com/search?client=firefox-b-1-e&q=SPY+tot...
- twobitshifter 5y ago
  Many large university libraries will have a terminal if you know who to ask and where to look.
dhosek 5y ago
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.

manojlds 5y ago

Or just look at the TRIs (Total Return Indices)