Historical Asset Class Returns: The 100-Year Scorecard
Historical asset class returns since 1928 for nine investments, from small caps to T-bills, and why only three of them grew faster than the money supply.
Topic
Dividend Reinvestment: The Difference Between Losing and Winning
Dividend reinvestment is the difference between losing and winning in Part III.
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If you had bought the S&P 500 in 1928 and spent the dividends, your capital would have grown 308-fold, short of the 473-fold growth in M2. Reinvesting every dividend took the same index to 11,570x.
We summed it up in the article as the stock market only beating inflation if you never took any money out, and we have not found anything in the data since that changes our mind. The moment the yield was spent, the investor fell behind the printing press.
- 11,570x S&P 500 total return since 1928 With every dividend reinvested, about 24 times what M2 did.
- 308x S&P 500 price only since 1928 Below the 473x growth in M2 over the same years.
- 64,626x US small caps since 1928 An M2-adjusted value of about 136.5, the top of the scorecard.
Articles on Dividend Reinvestment
1 article from our research on this topic.
Plain-English definitions
Key terms for dividend reinvestment
- Dividend reinvestment
- Using each dividend to buy more of the same holding instead of spending it, so the income compounds alongside the price.
- Total return
- Price growth plus every dividend, rent payment or coupon put back into the investment, as opposed to price alone.
- CAGR
- Compound annual growth rate: the steady yearly rate that would turn the starting value into the ending value over the period.
- M2-adjusted value 1.0 = break-even
- An asset’s growth divided by M2 growth over the same years. Above 1.0 it gained share of the money pool, below 1.0 it lost share.
FAQ
Questions about dividend reinvestment
Answers drawn from the figures in our research. Educational only, not financial advice.
How much does reinvesting dividends add over 100 years?
For the S&P 500 since 1928, it is the gap between 308x and 11,570x, so almost 38 times more money at the end. Against M2 that is the gap between losing about a third of your share of the money pool and multiplying it about 24-fold. No other choice in our data made as big a difference to the outcome.
What if I need the dividends as income?
Then on our numbers the capital was unlikely to keep pace with money printing over the long run, because the price-only return of the S&P 500 fell short of M2 from 1928. That is a real trade-off rather than a mistake, since many people need the income, but it helps to know which side of it you are on when you look at long-run return charts.
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