After forty years of marital and financial bliss, the couple are about to live happily after after in retirement... but suddenly, in an ill-advised moment, it occurs to Divvy to wonder about their comparative contributions to the final result. She approaches Cappy with some scribbling on the back of an envelope and says:
"Our savings grew by $1.5 million. Now, if we do not count my investments, but only yours, it is clear that with only your investments, our savings would only have doubled once every twenty years, and we would only have $400,000. Obviously, then only $400,000 of the $1,600,000 can be attributed to your investments, and the other $1,200,000 are attributable to mine. Therefore, I am responsible for 75% of our gains."
Cappy retorts "But I can do that calculation exactly the other way around. If we only count your investments, it is clear that with your investments alone, our savings would only have grown to $400,000. Therefore, it is my investments should be credited with adding the $1,200,000 and my investments that are responsible for 75% of the gains."
Now, let's revise the story slightly. Let's suppose that Cappy is actually responsible for 7.33% annual growth, and Divvy for 4.08% on top of that, and that we extend time period is extended from 40 years to about 73...
Now read the Wall Street Journal Article, "Test Your Smarts...on Dividend Investing," question 7:
And I personally believe "B" is the correct answer. And I look forward to a spirited and intricately tangled discussion.What percentage of the S&P 500's total return since 1940 can be attributed to dividends?
A. 20% B. 35% C. 60% D. 90%
ANSWER: D. Dividends are a big reason why investors make money in stocks, research has found. "Over the long term, dividends have been the main contributors to total return in equity investments," Ian Mortimer and Matthew Page, co-managers of Guinness Global Equity Income, wrote in a recent paper. A key contributor to this phenomenon: dividend reinvestment. The two found that a hypothetical $100 invested in the S&P 500 index in late 1940 would have turned into $17,470 by the end of 2013 if dividends weren't reinvested. But reinvesting them would have produced $265,851.