Last week, we have talked about the power of dividends.
Today we are going to review a couple of examples to illustrate this incredible power of reinvesting dividends.
This website is very useful to make some quick calculations.
Total Dow Jones Industrial Average Return over the last 10 years is +181.6%.
Annualised Dow Jones Industrial Average Return over the same period is +10.9%.
But the really interesting part is to be found here: Annualised Dow Jones Industrial Average Return (Dividends Reinvested) is 13.6%.
In other words, an investor who would have invested $100k in September 2009 in the US Stock market (assuming his or her investments have performed similarly to the Dow Jones index) would have had $281.6k today if he or she had decided to spend his or her cash dividends over the years. However, the same investor would have had $358k today if he or she had decided to reinvest the dividends over the period. Let’s be clear, the difference is absolutely massive.
When adjusted for inflation,
Total Dow Jones Industrial Average Return over the last 10 years is +137.5%.
Annualised Dow Jones Industrial Average Return over the same period is +9%.
The really interesting part is to be found here: Annualised Dow Jones Industrial Average Return (Dividends Reinvested) is 11.7%.
The added value of reinvesting dividends can be even greater when markets fall.
This had helped many of our clients who have invested in Vietnam during the unavoidable difficult periods on the stock markets.