Figuring total returns vs. price change only?

[Gardnr]

Splitting off from another thread:

Quote:

Originally Posted by Art G
BTW, you might want to consider adding in reinvested dividends into your charts. That's probably what screwed up your numbers. I'd bet a nickel you already knew that though.

You're right, I did. But the dividends are included. Everything is in there, except the American Funds front end loads of 5.75%.

CFB

Help me out here with something I've been trying to figure out. How do I find out and compare the total returns for different stocks/funds in chart form or otherwise? It's tough to compare apples to apples without figuring in reinvested dividends (and cap gains for funds).

Don't the charts just graph prices? Or can you configure them to somehow figure in divs and cap gains?

This can really lead to misunderstandings when comparing performance, especially between high yielding div stocks vs. growth stocks (or funds).

Thanks

 

[dex]

Don't rely on this answer - let's see what others have to say.
My guess is that the dividends and cap gains are factored in by the market and included in the price.
After the date of record the price goes down to reflect the dividend/cap gain.
If for example, the company declares a special dividend of $x the price of the stock will rise to current price + $X dividend. After the date of record the price of the stock will decrease by the dividend amount.

 

[cute fuzzy bunny]

Don't rely on this answer - let's see what others have to say.

I'll take that in a nice way. As soon as I figure out how.

The microsoft chart tool offers both a price chart and a "value of 10,000 invested" chart.

The latter includes expenses, reinvested dividends, etc.

As to whether its accurate or not, who knows?

For the particular chart I put together comparing TSM with AMCAP, TSM has a current yield of ~2% while AMCAP is around 1%.

So even if the chart excluded reinvested dividends (which would make it a rather pointless option) I dont think AMCAP would have made up any ground by having half the dividend. That whole "but we make it up on the volume" thing really doesnt work.

Maybe some of the other funds have dividends higher than 2%, in which case I'd suggest comparing them with one (or more) of the value indexes...since that style seems to better match the investing philosophy at American.

I can tell you one thing...changing from the price to value invested charts makes a huge difference in the numbers...

 

[lemming]

Vanguard has a chart that shows a hypothetical $10,000 invested for 10years to show a
funds history. I believe that assumes reinvesting all dividends.
I just did a couple of funds including their MMF . That fund should show a straight line over time if it only included share value.

 

[ERD50]

One way that I know of, is to go to the Yahoo 'historical prices' - they have a column labeled 'adjusted prices'. It adjusts for splits and dividends. As you go back in time, if there was a $1 payout, they drop the NAV to reflect that.

Dex is correct in that the fund/stock price goes lower based on a payout, but the graph will show that, making it look like you lost the money - but you got it. It just isn't on the chart. Yes, it goes up/down, but look at it this way - a $100 NAV stock pays a $5 div each year. 10 years later, if the stock is still $100 - the chart would show flat performance. But, you gained $50 over the years (plus interest if you took it out, or $50 more shares owned and added div payout if re-invested).

I've posted the same Q as Gardnr a couple times over the years, on a couple forums - never got a good source for charts that do this (splits, may show divs, but not reinvested). I agree, it makes just looking at a chart pretty meaningless when one investment has very small payouts, and another has large payouts.

-ERD50

 

[ERD50]

Vanguard has a chart that shows a hypothetical $10,000 invested for 10years to show a
funds history. I believe that assumes reinvesting all dividends.
I just did a couple of funds including their MMF . That fund should show a straight line over time if it only included share value.

Yes, the '$10,000 invested' is what you want - but can you compare stocks and ETFs with that, or just some select funds?

- ERD50

 

[cute fuzzy bunny]

Hmm, quick test. I did a price and investment chart on VTSMX and on the price chart it shows a ~35% value change over ten years and ~50% investment change. So obviously its incorporating dividends.

Looking at vanguards numbers from their web site, they're saying ~3.5% price change per year over the last ten years and a little over 5% total return. So it seems pretty accurate for that particular fund.

 

[Bails]

I am in a different country , but we do have a lot of managed funds. One thing I am certain of is it is very hard to analyze managed funds from their data. For example in Australia, the funds record yield based on returns being reinvested, however if you were invested in the fund you would still have to pay tax, even if the funds were reinvested. Another feature of managed funds in Australia, it the fund incurs capital gains within the fund, this is not taken into account, as an investor you pay, but the funds doesn't take this into account.

For me the only true way to wealth is buying securities directly, this means you sell when you want to, always know what the tax is, and always know what you own.

just a couple of observations for thought.

 

[Gardnr]

The microsoft chart tool offers both a price chart and a "value of 10,000 invested" chart.

The latter includes expenses, reinvested dividends, etc.

As to whether its accurate or not, who knows?

I went back there and looked for that feature and I'll be damned but I can't find it anywhere. Help me out with a pointer.

Laclede Group Inc (LG) - Stock chart, Index chart - MSN Money

Am I at the same place you're referring to?

For the particular chart I put together comparing TSM with AMCAP, TSM has a current yield of ~2% while AMCAP is around 1%.

So even if the chart excluded reinvested dividends (which would make it a rather pointless option) I dont think AMCAP would have made up any ground by having half the dividend. That whole "but we make it up on the volume" thing really doesnt work.

Hey, you don't have to convince me. I'm a VG devotee.

 

[Gardnr]

One way that I know of, is to go to the Yahoo 'historical prices' - they have a column labeled 'adjusted prices'. It adjusts for splits and dividends. As you go back in time, if there was a $1 payout, they drop the NAV to reflect that.

Yeah, I've seen that. But there's no easy way to graph that data, that I know of anyway.

I've posted the same Q as Gardnr a couple times over the years, on a couple forums - never got a good source for charts that do this (splits, may show divs, but not reinvested). I agree, it makes just looking at a chart pretty meaningless when one investment has very small payouts, and another has large payouts.

-ERD50

Pretty aggravating, isn't it? I've just got to think there's a good answer out there somewhere for comparing total returns for a selectable date range.

 

[Gardnr]

I went back there and looked for that feature and I'll be damned but I can't find it anywhere. Help me out with a pointer.

Laclede Group Inc (LG) - Stock chart, Index chart - MSN Money

Am I at the same place you're referring to?

Hey CFB or anybody. Don't let this die. I need to learn!

Thanks

 

[cute fuzzy bunny]

Ah, I think the trouble you're having is that you need to use internet exploder and download the 'chart toolbox' to get the cool charts.

Go here and follow the instructions.

Screener -- Promotion - MSN Money

I keep forgetting that this is something I always put on my computer when its new...

Once you have the toolbox installed, go to Personal Finance and Investing - MSN Money, stick in a ticker, click on 'historic charts' (or whatever the chart thing says on the left side under the quotes and snapshots) and the activex control for charting will pop up. You can then drop down options for the different types of charts, the time periods, etc, and then you can add other symbols to compare on the chart.

 

[Gardnr]

Ah, I think the trouble you're having is that you need to use internet exploder and download the 'chart toolbox' to get the cool charts.

Go here and follow the instructions.

Screener -- Promotion - MSN Money

I keep forgetting that this is something I always put on my computer when its new...

Once you have the toolbox installed, go to Personal Finance and Investing - MSN Money, stick in a ticker, click on 'historic charts' (or whatever the chart thing says on the left side under the quotes and snapshots) and the activex control for charting will pop up. You can then drop down options for the different types of charts, the time periods, etc, and then you can add other symbols to compare on the chart.

Ah, I see. I usually use Firefox but I guess I can break out the IE.

Thanks so much kind sir. I'll give it a go.

 

[Canadian Grunt]

Hey CFB or anybody. Don't let this die. I need to learn!

Thanks

I have a finance degree so I will attempt to explain rate of return and give some insight. There are several different formulas used for determining rate of return depending on the activity within the portfolio. This is the simplest formula to determine a return over one year. There is another if there are withdrawals.

Determining the static rate of return (average annual return or arithmetic mean) for a stock over 1 year:

((Return-Capital) / Capital)) x 100 = Rate of Return

Example ((110-100) /100)) x 100 = 10%


Now here is where you need to add some detail to your capital and return

Capital (initial cost): include your cost of transaction to buy and any load fees for mutual funds.

Return (end value): include dividends and subtract cost of sale if applicable.

If you make multiple deposits add all the deposits minus transaction fees for each deposit. There is actually a time value component but I wouldn’t worry about it for determining your return as you are seeking actual returns verses arithmetic returns which are different.

 

[Canadian Grunt]

If you want the Geometric mean (compound return) use this formula.



(capital/ return) ^ (1/n) -1

whereas ^ = power

n = number of years

Example: (investment with no growth over 2 years for simplicity)

(100/100) ^ (1/2) -1

(100/100) ^ .5 -1 = 0%

Remember do the calculations in brackets first, then multiply to the power (you need a financial calculator), and subtract 1.

Again for simplicity sake add cost of purchases over time to capital and add dividends to the return value.

I determine my returns by hand but you can set up a spread sheet for the formula above.

 

[jIMOh]

I have a finance degree so I will attempt to explain rate of return and give some insight. There are several different formulas used for determining rate of return depending on the activity within the portfolio. This is the simplest formula to determine a return over one year. There is another if there are withdrawals.

Determining the static rate of return (average annual return or arithmetic mean) for a stock over 1 year:

((Return-Capital) / Capital)) x 100 = Rate of Return

Example ((110-100) /100)) x 100 = 10%


Now here is where you need to add some detail to your capital and return

Capital (initial cost): include your cost of transaction to buy and any load fees for mutual funds.

Return (end value): include dividends and subtract cost of sale if applicable.

If you make multiple deposits add all the deposits minus transaction fees for each deposit. There is actually a time value component but I wouldn’t worry about it for determining your return as you are seeking actual returns verses arithmetic returns which are different.

This is a good post with solid information.

I was dealing with this issue yesterday. One piece of advice is to measure your own annual return to verify you are tracking with your investments. I have numerous funds which pay dividends 4X per year, so making sure I know my end of year internal rate of return for those accounts is important to me.

A second question I have- is it worth knowing 3 yr, 5 yr and 10 yr trailing returns? Is the annual return calculation (end value-deposits/beginning value+withdraws) the same for 1 yr, 3 yr, 5yr and 10 yr periods?

Thx

 

[Canadian Grunt]

This is a good post with solid information.

I was dealing with this issue yesterday. One piece of advice is to measure your own annual return to verify you are tracking with your investments. I have numerous funds which pay dividends 4X per year, so making sure I know my end of year internal rate of return for those accounts is important to me.

A second question I have- is it worth knowing 3 yr, 5 yr and 10 yr trailing returns? Is the annual return calculation (end value-deposits/beginning value+withdraws) the same for 1 yr, 3 yr, 5yr and 10 yr periods?

Thx

You require the one year static (annual return) return to compare apples to apples.

Example:

Isolate by asset allocation a the returns for a specific sector or an asset class in the portfolio. Don’t make the mistake of comparing financials (insurance stocks with bank stocks) with commodities (or mining stocks with oil stocks).

This is where the relevance comes in.

Using the annual return you can compare the returns within a sector so you can evaluate the overall performance of each stock relative to another in the sector (apples to apples).


You require geometric mean (annualized return or compound interest rate) to discover if your asset class and portfolio are meeting your expected return over a 3, 5, or 10 year time horizon. Note the term expected return; you can get this by examining historical returns for specific asset classes, sectors, and portfolios (depending on your asset mix), and by comparing with asset class information over the same time period.

A static one year return is not relevant for evaluating a portfolio or asset class return as you require at least 3 years of returns to compare historical rates of return, but 5 years is generally the minimum reliable timeframe.


Example:

Assuming a static dividend yield of 5% per year on a $100.00 investment over 4 years you would have year end capital as follows:

yr1) $105.00, yr2) $110.25, yr3) $115.76, yr4) $121.55

The four year compound return for a $21.55 profit is 5.4%

Note this is different from the 5% dividend yield.


All this assumes there is no capital appreciation for simplicity.

 

[jIMOh]

Example:

Assuming a static dividend yield of 5% per year on a $100.00 investment over 4 years you would have year end capital as follows:

yr1) $105.00, yr2) $110.25, yr3) $115.76, yr4) $121.55

The four year compound return for a $21.55 profit is 5.4%

Note this is different from the 5% dividend yield.

What is the math which is $21.55=5.4% (average?) annual return?

Most of the comparisons I make are rate of return in Roth IRA year over year, 401k year over year, rollover year over year. Each of them has a similar allocation (no bonds in Roth, other allocations are similar). Most of my analysis is more macro/ big picture- is the allocation in each account giving me the year over year return I expect.

If I see one account with a 6% return one year, then 1% the next then 5% the next, and I am comparing that to another account which is 10%, -3% and 6% in same years, I need a way to analyze the average performance.

thx

 

[Canadian Grunt]

What is the math which is $21.55=5.4% (average?) annual return?

Most of the comparisons I make are rate of return in Roth IRA year over year, 401k year over year, rollover year over year. Each of them has a similar allocation (no bonds in Roth, other allocations are similar). Most of my analysis is more macro/ big picture- is the allocation in each account giving me the year over year return I expect.

If I see one account with a 6% return one year, then 1% the next then 5% the next, and I am comparing that to another account which is 10%, -3% and 6% in same years, I need a way to analyze the average performance.

thx

Formula below.

(capital/return) ^ (1/n) -1


You need to examine your portfolio start numbers and end numbers and use the formulas above to determine your own rate of return.

If you are using ETF's or Mutual Fund published returns you likely will not receive the same rate of return as they advertise. Check it out.

The reason, they calculate their returns from a specific date to a specific date. If you invest during the middle and the fund or ETF goes up before or goes down after your investment date your rate of return will be significantly different.

This is the fundamental mistake most investors make so you need to determine your own rate of return independent of the rates published by funds.

As for accounts, you don't compare accounts. Find a return standard (comparable) such as the average return of a 50/50 portfolio of bonds and stocks or the S&P 500, Dow Jones Average etc. The information is out there for free if you look on the internet or you can ask your fund provider to provide comparables. Just make sure the comparables are relavent.

 

[Gardnr]

I have a finance degree so I will attempt to explain rate of return and give some insight. There are several different formulas used for determining rate of return depending on the activity within the portfolio. This is the simplest formula to determine a return over one year. There is another if there are withdrawals.

Determining the static rate of return (average annual return or arithmetic mean) for a stock over 1 year:

((Return-Capital) / Capital)) x 100 = Rate of Return

Example ((110-100) /100)) x 100 = 10%


Now here is where you need to add some detail to your capital and return

Capital (initial cost): include your cost of transaction to buy and any load fees for mutual funds.

Return (end value): include dividends and subtract cost of sale if applicable.

If you make multiple deposits add all the deposits minus transaction fees for each deposit. There is actually a time value component but I wouldn’t worry about it for determining your return as you are seeking actual returns verses arithmetic returns which are different.

I appreciate all this but I understand the difference between total return and price change. I was just trying to find out/figure out where to find good stock/fund charts that reflect total return vs. just price change.

I use the XIRR function in Excel to track annualized returns and an ROI formula to track YTD returns.

Thanks anyway!

 

[HFWR]

Remember do the calculations in brackets first, then multiply to the power (you need a financial calculator), and subtract 1.

A financial calculator should allow you to enter the known variables (PV, FV, n, IR), then spit out the unknown...

Cash flow is, of course, harder to handle, though maybe the more sophisticated calculators can do that as well...