According to Jason Zweig in the Wall Street Journal beating the market is easy. Just understate its performance.
Various investment promoters are touting their stock-picking prowess by comparing their returns, including dividends, to the Standard & Poor's 500-stock index without dividends. It is a lot easier to beat the market when you don't count its entire return. Over the past decade, according to Standard & Poor's, the S&P 500 benchmark gained an annual average of just 0.72% without dividends. But with dividends included, the S&P's total return reached 2.81% annually.
"There are two main ways to earn returns: price appreciation and income," says Stephen Horan, head of private wealth management at the CFA Institute. "If you systematically exclude one of them from your benchmark while knowing that your strategy includes them, you're making a fundamentally unfair comparison."
When mutual funds compare their return to that of a stock index, they are required by the Securities and Exchange Commission to include dividend income in the performance of the index. Money managers abiding by voluntary guidelines known as the Global Investment Performance Standards must do the same….
Don’t stop now. Find out more at:
http://online.wsj.com/article/SB10001424052702304563104576363892725584866.html
No comments:
Post a Comment