No. of Recommendations: 5
The effect of dividends on portfolio growth.

The S&P500 buy-and-hold with initial investment of $10,000, adding $100/mo, increasing the addition by 4% each year. The last month's amount is $288 (1975 start) or $427 (1965 start).

On Jan-2003, cease additions and begin withdrawing $1,500/mo, increasing the withdrawal by 2.5% each year. The last month's amount is $1873.

Final value on Jan-1-2013

Begin date Jan-1975:
Including re-invested dividends: $982,055
Without dividends: $261,729

Begin date Jan-1965:
Including re-invested dividends: $1,224,229
Without dividends: $512,099


Any investment strategy or method that delivers the returns of the index only, excluding dividends, is going to suffer a large burden. Over the long haul, dividends produce a very large amount of the total return.

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At Dec-2012 the S&P500 yield was 2.2%.

A portfolio of $1,021,600 yielding 2.2% pays a dividend of $1873/mo. At that point the dividends are more than the withdrawals, so the principal is not touched -- the withdraws are completely out of income.
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