Why I Don’t Compare My Portfolio’s Performance To The S&P 500

There are many individual retail investors out there that compare their portfolio’s performance to a benchmark like the S&P 500 – a collection of 500 publicly traded companies selected by market weight, industry, liquidity and other factors. Generally speaking, the S&P 500 is a widely used bellwether for the overall U.S. stock market and an indicator of business in general. For all intents and purposes, the S&P 500 is “the market” – and so when you hear about people “beating the market”, they’re usually referring to beating the S&P 500.

However, I don’t use the S&P 500 as a benchmark for which to compare my portfolio’s performance to. And I’ll tell you why.

I’m a dividend growth investor. By that I mean I typically invest only in companies with longstanding track records of rewarding shareholders with continuously increasing dividends. That’s definitely not the only basis that constitutes my investment strategy, but it’s certainly a cornerstone. I look for high quality companies with durable economic moats (including recognizable brand names, economies of scale, global distribution networks, etc.), healthy balance sheets, strong free cash flow, low payout ratios, rising revenue and earnings, competitive advantages, histories of operational excellence and great management. Furthermore, I look to purchase shares in these high quality dividend growth stocks at prices below their intrinsic value – a value that’s determined to a reasonable degree of accuracy through fundamental quantitative and subjective qualitative analysis.

This is something I repeat over and over again. And I’ve repeated these steps over and over again to the point that I now have a six-figure portfolio with shares in 43 high quality companies. This portfolio generates almost $5,000 in annual dividends right now, which is a great start on my way to my overarching goal of exceeding my annual expenses with dividend income. I’m 31 years old now, and my goal is to become financially independent – with the option to retire from work forever if I want to – by 40 years old. My expenses teeter around the $20,000 mark on an annual basis, so I’m about 1/4 of the way there.

Seeing as how my ultimate goal in life is to become financially independent by 40 years old via passive income generation through dividends, my attention naturally finds itself spent on monitoring my dividend income, companies’ policies regarding dividends, payout ratios, annual dividend raises by the companies I’m invested in and companies I’m interested investing in, etc.

However, my attention is never diverted toward comparing my portfolio’s total return against the total return of the S&P 500. Why? Because my ability to one day live completely off of the dividend income my portfolio generates has nothing to do with the performance of the S&P 500, or my portfolio’s performance against it.

Think about that for a second, because if you’re also interested in one day reaching financial independence in a similar manner to myself you’ll want to consider whether taking the time to compare yourself against an arbitrary benchmark is really the best use of your limited time and resources.

Put another way, my dividend income will one day pay for expenses like rent, utilities, food, gas, entertainment and travel. When The Coca-Cola Company (KO) or Philip Morris International (PM) deposits dividend payments into my brokerage account, I’ll one day withdraw that capital and use it to pay my through life. I’m currently reinvesting 100% of this income, but that will change when I’m done accumulating assets and living off the income those same assets provide. Now what would the S&P 500’s performance have to do with my ability to purchase food or pay for rent? Nothing.

In fact, I would say that comparing your performance against the S&P 500 can be dangerous and deceiving.

Let’s explore that concept a bit.

Let’s say the S&P 500 is down 30% for the year and you find that your dividend growth portfolio is down 31% YTD. Have you really “lost” anything? Would you have won some kind of prize if you were only down 29% for the year? No and no. Furthermore, the total return index investor who’s relying on the 4% rule and selling portions of their portfolio to pay for the aforementioned rent and food might be in dire straits as the underlying assets they’re selling off have declined significantly in price and may leave them in a position to where it’s impossible to continue meeting current obligations without bleeding their portfolio dry. I instead look at my portfolio as a tree where I pluck the fruit the branches produce instead of hacking off the branches, slowly killing the tree one cut at a time.

So you can beat the S&P 500, but if you can’t afford to pay your bills that doesn’t mater very much. It won’t get you very far to tell your landlord or bank holding your mortgage that while your portfolio took a beating and it’s tough to come up with the cash to pay the rent/mortgage, you beat the S&P 500 by two percentage points.

Put another way, if after twelve years of investing I outperformed the S&P 500 on a cumulative basis but failed to build my passive income to a level that was sufficient to pay for all of my expenses I’d consider my journey a failure. Outperforming the S&P 500 doesn’t pay the bills, but dividend income does. Outperforming the S&P 500 doesn’t win you prizes, but attaining financial independence wins you the biggest prize of all: time.

I focus on what matters to me and my ability to one day live off of passive dividend income. This means focusing on quality and value. I regularly research companies I’m currently invested in and companies I’m interested in investing in for dividend payment health and the reasonable likelihood of continued dividend growth. I focus on reducing my expenses as much as possible so that I can save more than 50% of my net income, thereby giving myself the most ammunition possible with which to purchase high quality equities on a regular enough basis so that my dividend income is exponentially growing constantly. I may not load up an elephant gun like Warren Buffett with the type of ammunition I’m working with, but I can do a lot of damage with a pea shooter over a decade.

However, even though I don’t focus on trying to beat the S&P 500 that doesn’t mean I’m not interested in total returns. I am. But what I find is that high quality companies that have such wonderful brands, such ingrained systems and services and such profound records of operational excellence that allow them to raise dividend payouts for years or decades on end tend to do pretty darn well over the long haul. Furthermore, because many of these companies – like Exxon Mobil Corporation (XOM) or Johnson & Johnson (JNJ) – tend to have a low beta (a measure of a stock’s volatility against the market as a whole) I usually experience less of the dramatic ups and downs of the broader market. I tend to see my portfolio rise a bit less when the market is up and fall a bit less when the market is down. And as a final point, while I surely appreciate a solid risk-adjusted return over a long period of time I rather look forward to seeing shares in the high quality companies I’m interested in or already invested in decline in price because it allows my fresh capital to buy more shares, and hence increase my dividend income at a more rapid pace. More shares buys more dividends, and more dividends means greater reinvestment ability.

As always, I recommend focusing on what you can control. I constantly reiterate to let go of fear and greed and all of the emotions that will lead you astray as an investor. As an extension of that advice I also recommend to refrain from comparing yourself to some benchmark that someone else manufactured. This goes for the S&P 500 or any other collection of equities out there.

I could fail to outperform the S&P 500 for every single year of my investment career and still succeed as an investor – because my definition of success is being able to claim complete financial freedom by the time I’m 40 years old. And which sounds better to you – bragging rights or freedom? I’ll take the latter.

How about you? Do you compare your performance to a benchmark? 

Full Disclosure: Long KO, PM, XOM, JNJ

Thanks for reading.

Photo Credit: Stuart Miles/FreeDigitalPhotos.net


  1. says

    While my main concern and focus, like you, is the dividend income I still like to compare every now and then versus the S&P 500 only to make sure I’m not lagging significantly. If say over a 5 or 10 year period I’m consistently losing to the market by a significant margin then I’d be better off in the long run changing strategy and index investing. Since I don’t need to live off the income from my investments yet if I was leaving money on the table that could be put to better use in the future with a larger basis and larger income by converting to a DG strategy later on. Of course with a shorter time period its harder to isolate what the cause for any difference in return was. Were the companies you owned out of favor or did you make poor investing decisions? Over a 1 year period you can’t really tell. I’d guess 5 years would be the minimum to get a good idea.

    • says


      I don’t see it that way. My goal is to build the largest stream of income in the shortest period possible. Even investing in an index fund that tracks the S&P 500 will lag the market due to fees and taxes (if applicable).

      If your sole goal in life was to build up the most possible capital, then would investing in an index tracking the S&P 500 really be the way to go? At that point you’re slightly below average. So you’d be moving on to big growth plays and the risk that comes with them.

      Besides, investing in value plays that are out of favor isn’t the way to “beat the market” That’s almost a surefire way to lag the market, at least until the value of these stocks are realized by everyone else. And what time period do you allow these companies to have fully realized share prices? Is that what we really want? We talk all the time about wanting cheaper shares, but if that comes at the price of lagging the market now you should switch strategies?

      Some food for thought. :)

      Best wishes!

    • says


      You made a great point there on “actionable insight”.

      I don’t know what investors are looking for by comparing themselves to others. To switch strategies at will to match what someone else thinks is the correct return is crazy, in my opinion. And besides, what time period do you use? 1 year? 5 years? 10 years? So you switch strategies after under performing the S&P 500 for five years, and then what? What happens if you would have just stuck with what you were doing?

      I look at myself as an owner of businesses, not a trader trying to win a game. It’s just a perspective I have.

      Best regards.

    • says


      I wasn’t advocating for amassing the largest balance total. However, if you lag a benchmark by a significant margin for an adequate sample size of time then you would lose out on potential income to live off of. I don’t know what kind of underperformance would be required before I would consider switching but it’d have to be pretty significant. Think SP500 returns 10% over 5-19 years and I’m only warning 5-6%. Although like you mentioned in one of your replies to someobe else, that’s not that realistic as compabies that continue to grow their dividends by 7% per year won’t continue to stagnate in price as well. On average a DG strategy should be in the ballpark of most major indexes, just a gut feeling. Also investing in value stocks have typically beat the market over the long run. Of course with the shorter time frames that we’re aiming for it wouldn’t be worth it to make any changes. And there’s also the tax issues since we’re both planning on relying on our taxable accounts for freedom. If we had a 25 or 30 year time frame then it would become more important to make comparisons as you could potentially set yourself up better in the future.

    • says


      Great points there regarding taxes and the short time period. That’s a point I meant to include but did not.

      I think that if your goal is to “beat the market” or at least match it why not just invest in an index fund that tracks the market? My goal is not to beat the market. My goal is to build a passive income source large enough to fund my lifestyle. I anticipate the total returns of my portfolio to be near what the S&P 500 provides over a long period of time, albeit with less ups and downs as the beta will be less than 1. If I can acheive more passive income without having to sell shares, less volatility and a similar return than I’m completely okay with that.

      As I asked in a different response – will you really be tracking your portfolio’s performance against a benchmark when you’re in your mid 40’s and covering all of your bills with passive income with a healthy margin of safety? I’d say it’s unlikely. At that point you’re far ahead of almost everyone alive or anyone who has ever lived, so what’s the point of comparing yourself even further?

      I mean no disrespect or anything with my questions or comments. I’m just opening up the discussion. And I don’t mean to discourage anyone from benchmarking. If that suits you then go for it. It just doesn’t suit me.

      Best wishes!

    • says


      My main goal for a DG strategy is the income but given the shorter time frame benchnarking doesn’t make as much sense. If I was planning on 20-30 more working years and lagged significantly over a 10 year period then indexing could be the better way until it comes time to live off your investments. Then it’d be back to DGI all the way. I don’t think I was clear about then swapping to a DG strategy at retirement. If there’s a way you could achieve higher returns on a comparable risk basis then why wouldn’t you take that? I use my benchmarking more for fun but I see value in doing it as well. To each their own I guess. We should both be FI before it’d even be a real concern though. You bring up a good point about who really cares if you’re already covering all of your expenses with a margin of safety. As long as the dividends at least match inflation does it really matter? Sorry if my previous comment came out poorly. Definitely no disrespect meant.

  2. Tyler in Thailand says

    I was just thinking about this the other day. Because though the concept of only caring about your dividend income progress, not your overall portfolio value, is SO clear and sensible, the carnal investor in me still watches the total balance surge and sag and feels the emotions that go along with that.

    I really wish there was a way to program our brokerage accounts to show ONLY our dividend income. Then I’d never have to worry, because my balance would never go down. It would just go up and up every month new dividends came in. And the rate of growth would accelerate from year to year as I continued to use my savings to buy stocks. If only I could just find a way to hide that total portfolio balance…

    • says


      Haha. That’s funny. I’ll see if Scottrade can just off my balance notification. :)

      I hear you though. It’s tough not to get caught up in the emotion of it because, in the end, it’s our money we’re talking about. And it’s difficult to not get emotional over money. I do my best to remain stoic, but it can be trying at times.

      Good luck to you staying the course. :)


    • says

      If you plug your stuff into Wikinvest there is a summary on the left and down which is Dividends (defaults to YTD but can be changed to 1m, 3m, etc…). I guess you can train your eye to glance there only! Best regards!

    • says


      I felt the same way about wanting DG strategy investing tools which focused on building passive income. When I couldn’t find them I decided to build them myself, so I created DividendGeek.com. My portfolio tools are strictly focused on growing your income stream, dividend growth, yield on cost, etc.. Tools DG investors all wish were in their brokerage firms website, instead of the emotional pull of capital gains and trade, trade, trade to generate their commissions.

      The primary portfolio tools are free, give it a try and see what you think. I believe they will help to reduce your investing emotions and straighten your long-term DG income commitment as they have done for myself and others as they were designed to do.

      All the best!

  3. says

    Greetings Jason. By investing in mostly blue chip dividend stocks I would expect your portfolio to perform as you’ve said…..steady, rising, and always paying dividends. I figured a while back that I would always beat some metrics and get crushed by some others……what’s it really matter anyway. What’s most important are YOUR goals and YOUR dreams……and you are rapidly chasing them my friend. Have a great night

    • says


      Thanks for stopping by.

      I agree with you. I was alluding to that in the post: many blue-chip companies we like to invest in tend to outperform the S&P 500 over long periods of time. Tracking them at every turn and biting your fingernails because MCD is flat while the S&P 500 is up double digits is a pointless exercise in my mind. Jumping from strategy to strategy in search of the biggest return will likely only yield you less returns than if you just stick to a proven strategy through thick and thin. If you stand for nothing you’ll fall for anything.

      Take care.

  4. says

    I think you nailed the biggest problem of every investor. Your way looks like the right way to benefit from the dividend growth snowball. Keep on your good work.

  5. Chicago81 says

    It is much more motivational to me to look at my spreadsheet that tracks my anticipated annual (and monthly & daily) dividend income from my stocks, than to look at the current portfolio balance. In fact, it is kind of depressing to watch the portfolio balance balloon up higher on capital appreciation! It only means that my freshly deployed dollars will purchase fewer shares than the day before! :(

    I’m up to $5350.40 in annual anticipated income! It really is starting to feel like it snowballs. Every time I get a paycheck from my 9-5 job, I send funds over to my brokerage account and purchase more shares. Every time my tenant pays their monthly rent, I send more funds over to the brokerage. And the dividends keep rolling in. December (like March, June, and September) is going to be a huge month of dividends for me.

    • says


      I couldn’t agree more. I get giddy when I look at my dividend income rise over time. Looking at dividend income reports from when I first started compared to today is really motivational. I get excited when I see 10% dividend raises, much more so than when I see the market up by 1%. The dividend raise means actual cash will hit my pocket, whereas the market’s ups and downs are transient in nature. Cash is cash, whereas a portfolio balance is just numbers on a screen. And one day I’ll be living off the former, not the latter. So that’s why it matters so much more to me.

      It sounds like you’re doing great with that snowball of yours. That thing is going to turn into an avalanche one day, showering you with cash.

      Keep it up!

      Take care.

  6. says

    I always focus on cashflow from my investments, I could really care less about the value of my portfolios. This applies to both stocks and real estate. It really helps me ignore the market chatter and focus on income. Im in the same boat as chicago81 above me, only difference is my day job doesn’t pay much so it only handles my families expenses, while my income streams sustain and grow themselves.

    • says

      Investing Early,

      Cash flow. That’s really where it’s at. You know exactly what that’s like investing in real estate. So what if Zillow shows your real estate worth $4k less today than yesterday? Price fluctuations are nothing but noise. As long as the cash flow remains strong that’s all that really matters. Cash pays the bills, whereas balances are nothing but numbers dancing in your head, playing with your emotions.

      Best wishes!

  7. says

    I personally don’t see a problem with index investing vs dividend growth investing. Both are exceptional ways to build wealth and get out of the rat race. I think what is most important is that you enjoy DGI, thus it helps to motivate you to stay consistent with both saving and frugality. I personally think the boglehead approach is best over a long time frame, but I can’t help but to be a DGI investor as well. I currently hold the simple three mutual funds as my primary investment vehicle with another 32 dividend stocks to help with my DGI itch. Great article!

    • says


      I agree with you. Both index investing and dividend growth investing are fantastic ways to build wealth over the long haul. I would also agree that index investing is the way to go for the vast majority of individual investors out there, if only because of the time savings involved. It’s a lot easier to track 3-5 index funds than it is 30-50 stocks.

      Sounds like you have the best of both worlds. :)

      Best regards.

    • says

      Thanks for the time you take to reply to all the posts. I personally would feel comfortable investing smaller amounts into stocks, but if a person has a lot of capital I think diversification of index funds is hard to beat. Imagine putting theoretically 500k into 35 companies. That would be over 14k in each individual company. I would have a risk tolerance problem possibly losing that much on one company failing. I’m taking a 4 leg approach to early retirement. I plan on early retiring in another 3 years, so only time will tell. I couldn’t retire at 40 because of having a spouse and children, but I can’t complain with retiring at 44. I’m fortunate that we are a two income family which is helped dramatically. I pretty much took the same approach to the folks on wherewebe.com. I just found their site a few days ago and its funny how their journey/experiences are almost identical to mine when it comes to investing in yourself first, home ownership, condo purchase and diversification. The one difference is I hold my DGI stocks as our entertainment money. I love DGI, but I don’t like how the dividends are substantially different month over month. I’m hoping that monthly withdrawls from an index fund will offset this. Thanks again for the reply and personal inspiration from your blog.

  8. says

    In my mint account, it compares my portfolio to the S&P 500. I am doing bad. lol But I dont care because I am yielding 3.78 and it will only get better. Great post.

    • says


      I view the the S&P 500 and a dividend growth portfolio as apples and oranges. One is focusing on a select group of high quality companies to deliver sizable income that rises over time. The other looks to reduce risk by spreading the bet around 500 different ways with income being secondary. I’m not looking to be a bellwether of the economy, I’m looking to develop enough income to pay my bills one day with the hopeful assurance that the income will outpace inflation over time.

      I would personally turn off that feature. :)

      Take care.

  9. says

    As some folks already have said, you’re right on track with this mindset. Record highs or lows mean nothing if the underlying fundamentals of the companies in which you’re invested in don’t change.

    I know I personally ignore the noise and only focus on whether each aspect of my investment portfolio is measuring up to the appropriate standard I’ve determined. For my dividend growth portfolio, it is monthly and annual income. For my P2P lending accounts, it is monthly and annual net interest. And this goes on and on for my other investments. Each has a benchmark to meet or exceed and that is the focus.

    • says


      You nailed it. I focus on the fundamentals of the companies I own a stake in, not what the stock market is doing. I look at myself as a business owner, not a stock trader. It’s just a totally different mindset. Unless someone is looking to pay a ridiculous, stupid amount of money for my ownership stake(s) then I’m content to keep collecting the dividends and reinvest.

      Best regards.

  10. says

    The focus on the cashflow that my investments produce, while “trying” to invest in companies at attractive prices that will pay increasing dividends over time. I was in a while compare my portfolio with the TSX Composite Index in Canada as that is where I invest my money mostly.

    • says

      Investing Pursuits,

      Yep, the focus is on the cash flow. I should have been a little more clear with that in the post, but it was already a bit verbose. The S&P 500 doesn’t focus on cash flow, so why should I care about what it does or doesn’t do against my own portfolio. It’s just different perspectives and different ways to build wealth. I look at it like apples and oranges, so why try and compare the two?


  11. says

    I understand your reasoning and why you don’t compare to the S&P500 but I think you should make the comparison. If you are lagging the S&P 500 you are not making as high a total return as if you were invested in the index. You say that is not important to you since you are planning on living off dividends. However, if the index has a higher return and you invest in the index INSTEAD of dividend stocks UNTIL you are ready to retire and THEN convert to a DG portfolio, you will have a higher overall portfolio value AND MORE dividends than if you follow the underperforming dividend strategy. I.e. lets say you invest 100k and over 10 years in div stocks with an average yield of 4% and at the end of 10 years your portfolio has gained an average of 5% total returns a year. Your portfolio is now worth $162,889 and is generating $6515(4%) in dividends. Let say the S&P 500 does 7% a year total return with the same criteria but obviously has a lower yield. Your portfolio is now worth $196,715. You can SELL the index fund now and invest it in the exact same DG stocks as the other portfolio yielding 4%. You now have $7,868 in dividends. This is all assuming that a DG strategy underperforms the S&P 500. I am not saying it does… but there is only one way to find out… compare yourself to the index.

    • says

      Great points. Everyone I know that is extremely wealthy takes the index investing approach. My reasoning knows its the safest approach, but its boring as heck!

    • Tyler in Thailand says

      I know Jason can answer for himself, but I just couldn’t help but chime in to remind you that your calculations have not factored in the compounding effect of reinvested dividends and dividend increases over the 10-year period. With the DGI approach, your yield on the initial cost of the portfolio is constantly increasing. With the dividends hitting your account regularly, you can use them to buy additional shares during this time without adding any outside capital. As share count increases, so do future dividends, which are also reinvested. Plus, if you factor in a conservative annual dividend growth rate of let’s say 6% across your portfolio, the snowball effect will take you well north of what you’d be able to buy with $196,715 invested 10 years from now at a 4% div yield.

      I have absolutely nothing against index investing, great tool. But if a large and growing future dividend income is what you’re after, then a DGI approach right from the start is the best way. Not index investing with the intent to convert later. Even if your total returns under perform the market.

    • Pelle says

      Very interesting discussion. A question tho: Wouldn’t normally an index fund also reinvest the dividends, i.e. fiveohs reasoning is still correct?

    • says

      Total return includes reinvested dividends in both cases. The index fund would have the reinvested dividends as well. Obviously I just made up the numbers for both. The DG portfolio may very well outperform the index. I follow a DG strategy as well but I do benchmark my portfolio vs the S&P 500 and think everyone should, UNLESS you are already drawing down the dividend income.

    • Anonymous says

      I think your math is off here a bit unless I am missing something. Based on my calculator if you took $100K and assumed a total annual return of 7% (6% growth and 1% div) and dividends grow at an annual rate of 6% per year your portfolio in 10-years would have a balance of $197k and would be generating $1,850/year in dividends. If you then took that $197k and invested it at a dividend rate of 4% you would only be generating $8,000 in income per year in your first year. On the flip side if you invested $100k @ 4% yield with only 1% price growth and the same 6% dividend growth rate in 10-years your portfolio would have a balance of $181k and you would be generating $10,600 in dividend income annually. Unless I have done my math wrong (which is possible) the $197k cashed out and then invested in the same dividend stocks as the other portfolio for another 10-years would never make the same level of income as those purchased in the DG portfolio. All else being equal that is.

    • says


      I’m not going to specifically address your math, because the odds of a portfolio of dividend growth stocks yielding 4% returning just an additional 1% in capital gains over a decade is almost impossible if the broader market is doing that well. Put another way, I don’t know how much of that math is based in reality. A typical dividend growth stock (take your pick) that is raising its dividend by, say, 7% annually would be yielding somewhere north of 7% after that decade with just 1% price appreciation. The odds of a PM or PG or UL doing so is just not likely outside of a severe recession (in which case the S&P 500 won’t be returning 7% per year).

      Per your discussion on jumping ship, that doesn’t really make sense to me. How long do you wait? 5 years? 10 years? How much under-performance should be involved to warrant a jump? 1%? 2%? More? I find that type of thinking as lacking conviction in the businesses you’re investing in. So you’re saying if Coca-Cola stayed stagnant for the next 10 years allowing you to buy more shares in a high quality business on the cheap, but caused your portfolio to lag the S&P 500 you’d bail? See, I see it the opposite. If my portfolio lags the market and I’m able to continue picking up shares at a good price then I’m a happy camper. That gives me a bigger stake in the businesses I’m interested in, which provides more cash flow my way. Trying to compare myself against the general economy and feeling bad if I don’t match an arbitrary number is ludicrous and pointless, in my opinion.

      I talk a lot about hoping for cheaper share prices. The ultimate version of that is cheap prices in high quality companies for years on end, yet that might cause me to lag the S&P 500. So who’s winning?

      Best wishes.

    • says

      I just pulled those numbers out of thin air. You can use whatever % you like. The bottom line is the method with the highest total return = the largest income @ retirement. You wont know which method is superior unless you compare. :)

      My concern is less with KO lagging but my portfolio as a whole. There have been lots of studies done that show that most investors under perform an index fund. I might think KO is a great stock for 10 year and undervalued and it turns out to be a terd in 10 years. Not a lot of us are Buffet and can beat the market consistently.

      However I feel that DG investing DOES give more more of a chance to do this with the steady raising dividends and “usually” higher % of my TR coming from dividends that are paid on a regular basis.

      I currently do a mixture of both(index funds and a DG portfolio) and will be watching closely to see which one comes out ahead. I’m giving my DG portfolio 5-7 years and if I’m not at least close so the S&P average over that period, I will only invest in index funds.

      Again, I’m not saying the DG strategy isn’t good, just that you SHOULD compare it to the S&P.

      Just my .02 so not worth much hah.

    • says


      Your $0.02 is worth just as much mine, or anyone else for that matter. :)

      I hear what you’re saying. In the end, we must all do what is best for our wealth and health. If index investing gives you the best shot at hitting your goals, whatever that may be, then go for it. I’ve always argued that index investing is the best bet for most people, if only because of the fact that it requires less time and effort.

      It’s all about what your goals are, and how best to acheive them! :)

      Best regards.

  12. Spoonman says

    This is an excellent article. I only treat the S&P500 (or the DOW, my favorite of the bunch) as a simple barometer for what’s going on in the general market. I’ve never compared my portfolio to a general market index. All I know is that my portfolio has a greater chance of providing a monotonically increasing stream of dividends than a general market index, or one of those so-called dividend growth ETFs out there.

    • says


      Thanks! Glad you liked the article. :)

      I agree that the S&P 500 is a general barometer of market conditions. I like to refer to it as my “check on the weather”. While I don’t use it for investing decisions directly, it gives me a very broad idea on where things are at. Other than that, it’s just a number for me.

      Best regards.

  13. says


    I really like your analogy of plucking the fruit from the try as compared to cutting off a branch and eventually killing the tree.

    I believe everyone should use an approach that works for them and interests them as I believe a lot of people invest as a hobby as well as a way to make money, and you are more likely to work at something that you enjoy, than something that is a chore. If your investment style is a chore its more like working at a job you don’t enjoy, as compared to enjoying what you do each day..

    My real goal of Financial Independence is “to have the choice of what I do with my time”, not to have to spend every day slogging away at a job I don’t enjoy.

    • says


      Glad you liked that analogy. I realized that was the essence of the dividend growth strategy pretty early on.

      I agree with you. Your investment style should suit your temperament, personality and time constraints. I would argue that index investing is the best way to go for most investors because it allows you to get slightly less than average returns without spending a lot of time. It’s a win-win for the most part. :)

      And I’m with you on not slogging away at a job I don’t enjoy. I’m very anxious for the day when my time is completely my own! :)

      Take care.

  14. says

    I still compare my portfolio to the S&P and DOW, but only on December 31st each year. I’ve been doing this for ten years or so, so it is cool to see my track record. However, one year, 2008 was horrible, so it didn’t really matter. Its an easy calculation and I already have the spreadsheet to do it for me. But yeah, I’m really focused on the income like you at this point.

    • says


      I don’t think comparing your performance to the S&P 500 is a bad thing to do if it’s just for fun or entertainment. The problems might only develop when you start making investment decisions based on what you see. However, like I said in the article I find that my returns best the broader market when it’s down and lag when it’s up. Although it doesn’t matter a lot to me, it does make it easier psychologically to deal with less ups and downs. It’s just a smoother ride in the end.

      Best regards.

    • says


      Buffett is an investing genius. I know that I’ll never be able to match him. But if I can achieve something still as singularly great as financial independence when most people are just hitting their stride in their careers I’ll consider myself a fairly smart guy as well. :)

      Best wishes.

    • says


      Sort of. Last I knew, he compared Berkshires book value against the growth of the S&P 500. It’s an indirect comparison, but probably fair because he can’t really control his own stock price. In the end, it’s an argument for what I’m talking about: increasing your “book value” per ownership in high quality stocks, not what your underlying “share price” (portfolio) is.

      Hmm, I think that’s another article right there! :)


    • says


      Haha that will make for a good article.

      I agree with you on all fronts about not benchmarking to the S&P, its apples to oranges and you have different goals. The question I am thinking about now is how does Buffett makes it a useful comparison to decide whether or not to keep retained earnings in the business or to pay them out as dividends? He has been pretty clear that as long as he feels that he can beat the market, berkshire has a no dividend policy since the money will be better off reinvested with him. But there will obviously come a point where the company is too big to maintain the growth and outperform, at which point those retained earnings will be paid out in dividends. I guess im trying to imagine what would finally make him say, okay, I think its time to pay dividends.

    • says


      Based on Buffett’s outspoken disdain for paying dividends I don’t think we’ll see that day while he’s alive. It may turn out that when Buffett has passed on BRK will pay out a dividend, much like Apple did after Steve Jobs passed. I think there’s a good chance of that happening.

      We’ll see!

      Best regards.

  15. says


    Thanks for the article. I posted a similar article last Tuesday about comparing to the DJIA. Although not written nearly as well, my point was too many people get wrapped up in comparing to the indexes. For me it’s more of a “feel good” measure like looking at your YOC (yield-on-cost). In the end we need income to retire and that comes with solid companies that pay increasing dividends each year.

    • says


      You’re absolutely right. In the end, it’s your ability or inability to pay your bills via the passive income your portfolio generates, not how you compared to an arbitrary benchmark. I don’t know why I would focus on what someone else is doing when all I can control is what I’m doing.

      Best wishes!

  16. says

    As always, your blog serves to inspire me when I see my portfolio value drop due to market noise. It’s always important to remember the big picture.

  17. says

    The S&P 500 is just one index out there. There are indexes of companies that are focused on dividend and dividend growth investing such as NASDAQ US Dividend Achievers Select. If you compare your portfolio to something like the index mentioned above year in and year out, spending all your time investing may not be the best use of your time if you dont see yourself beating the index. You could potentially divert your attention to earning a higher income with the time saved from not researching and monitoring investments. I get what you are trying to say as far as the purpose of you portfolio, but, apples to apples comparisons are useful in understanding if you are indeed accomplishing something that an index fund could not. Of course you enjoy investing as a hobby which is one of the reasons you do it and also the lifeblood of the blog…I do appreciate all your writing and perspectives on the blog!


    • says


      Thanks for the perspective there, and I’m glad you appreciate the blog. :)

      I don’t agree with tracking my portfolio against any index or benchmark. What’s to stop me from then tracking it against what other investors are doing? If they’re beating me, should I copy them? What if I start investing like them, but then find someone doing even better? Should I then hop on over to that strategy? And what time period do I use? 1 year? Too short. 5 years? That’s probably a decent sample size…but then I’m already halfway to my goal of retiring by 40. Now I need to start over with a fresh new strategy.

      Besides, like I said above picking beat up, unpopular stocks is not a surefire way to beat the market. If anything, it’s a great way to do worse than the broader market. I picked up AFL cheap and it stayed cheap for a while. PM is cheap right now and it’s my biggest holding. DLR is one that’s been killed and I’ve been buying more. Because I’m not beating the S&P 500 right now should I give up?

      I look at it like pieces of businesses, because that’s exactly what stocks are. I don’t buy for the sticker price. I buy for the cash flow they provide, the future cash flow they likely will provide and the quality of the underlying operations.

      I hope that clears my perspective up a little. :)

      Take care!

  18. says

    I always compare against the DAX (Germany) and the Dow Jones.
    But that’s just a simple comparison for fun.
    But I think, it can not hurt, because companies can increase their dividends only if they make more profit. And that leads to rising prices – and this leads to a outperformance against the index.
    If you can beat the market – your companies will also raised their dividends.


    • says


      I agree with you. I don’t think there’s anything wrong with comparing for fun. I would only say it’s harmful if your investment decisions start to find themselves hampered by the comparison, or you start to make changes to a longstanding strategy. There’s nothing wrong with index investing, but dividend growth investing takes a while to get going. Becoming discouraged by not matching an arbitrary index over a self-imposed period of time would be a shame.


  19. says

    Jason – I would disagree with you on this.
    You need to have some benchmark comparison to know how we are doing. In your case it can be DVY, VYM or VIG. I would say more than 30%-40% weight of S&P index would have same holdings as your portfolio.

    If your DGI portfolio yields 8% (reinvested dividends) and the overall market yields 10%(reinvested dividends), its no fun. You would end up having less balance in the end compared to investing in overall market index. In the end, when you have bigger balance, you can buy more shares of whatever you like that time which will produce you more dividends. I’m not saying your DGI portfolio will underperform any index, but saying you have to compare your performance with something else.

    I agree you might have low beta stocks which might go down 40% when the entire market tanks 50%, but in the end we are all investing with a conviction that the market will go-up. So when market goes-up 100% and DGI portfolio goes up only 80%, I would stand ready to take that additional beta for the additional performance.


    • says


      So if you had a handful of high quality companies that stayed depressed for years on end (like ABT not too long ago) allowing you to buy more and more shares with ever larger claims on future dividends, but caused your portfolio to lag the S&P 500 you’d switch?

      We talk about wanting cheaper shares to lay claim to more dividends, yet everyone wants to beat an arbitrary index at the same time. I guess I’d rather have larger stakes in high quality businesses than bragging rights. Just my perspective.

      Best wishes!

    • says

      The difference between Indexing (Indexed base investing) and Dividend Growth Investing seems similar to the difference between Growth Investing vs Indexing, however, they are all different approaches! Some of us would rather pay the rent then have a great conviction that our money did well over time in the broad market!

    • says

      I just want to clarify so I don’t look nuts: I max out my IRA and SEP-IRA contributions in the first 2-4 months of the year generally. That money goes directly into Vanguard Index funds like the ones mentioned above though I tend to blend them toward the Bogle crowd with a hint of Slice and Dice. I am very happy how they perform and confident they will eventually contribute toward my dividend goals. The rest of my hard earned savings goes into Dividend Growth Stocks. These approaches overlap a lot, though the goals of the approaches do NOT overlap! Sometimes, when I am baffled about what to purchase as everything seems to be too expensive or nothing catches my attention, I also put those funds into Indexes like VOO, VB, VTI and so forth. Or just go for something like VYM. The real discussion I would think would be relevant would be if one only invests in VYM vs individual dividend stocks what would be the possible outcome? Personally I will continue to do both because I love both. I love the feeling of having a stake in a company like Pepsi, whereas I do not use any of their products, whenever someone drinks a Pepsi I stand to gain a bit…I love that! In an Index the proportions are shifted around without your knowledge or consent which is fine (as I said I do that as well) but has nothing to do with, say, owning 300 shares of JNJ and reaping the direct dividends over the years (and then being able to pass those shares and the philosophy that gained them to your family).

    • says

      It looks like we have similar approaches. VHM is very hard to beat, but I also enjoy owning the company. It’s probably smarter (diversification wise) to own VHM instead of individual stocks, but it is extremely boring! That ETF holds pretty much every company that DGI investors rave about so its a great idea in my lowly opinion. It will definitely make life a bit easier during tax time as well. I use to be in the mutual fund that you mentioned, but I eventually just went with the 3 fund portfolio. Mainly because I couldn’t make my mind up and jumped around too much in my decision making process.

    • says

      To be a little more clear my plan for my non DGI index mutual funds is to give me a steady monthly withdrawl amount until I reach the age of 60. My hope is that this will add stability of knowing exactly how much I’m getting per month for basic paying basic expenses. My DGI holdings are for vacation money and other variable expenses. Like most of the other Boglehead types I have been around investing for 20 plus years and I have learned that diversity is huge. I diversify with bonds, Ibonds, funds, stocks and even real estate. I actually purchased a condo when the market crashed in Florida for my cheap retirement residence. I was lucky and it doubled in price and I traded it for one on the bay at about the same price. Many people still don’t believe in buying property, but diversification prevailed for me over and over. Income investing has been huge since after 2009 after quantitative easing with bond prices. My hopes are that it lasts for ever, but I will still diversify. Everyone has different investment methods. In my opinion the best thing person can do is live well below their means. Its easier to cut expenses by $100 per month then to save 30k to pay that bill with investment income. This is just my lowly opinion/approach.

    • says

      Jason – As you are aware, there will always be outliers in a well diversified portfolio. For Example – BBL from your portfolio is up only 63% while S&P is up 100% and OKE is up 300% in the past 5 years. There is a reason why we put only 5% of our portfolio assets into 1 company no matter how great the company is. What matters to us is what is the return we made on our portfolio.

      I’m not saying I want to beat the index, but saying we should keep a check of our portfolio with some kind of a broad based index. Obviously we will not sell all our holdings if we underperform the market couple of points in a short duration. But if we are constantly underperforming some broadbased index for long periods of time, I would definitely rethink my strategy and start thinking something different. I’m focusing on the net value of my portfolio in the end. And ofcourse you are too (by reinvesting dividends) but have a different strategy. You may well beat the market with your portfolio in the long run. There is only one way to find out.. wait and see in few years :) !!

      Good luck !

    • says

      Katz –

      I 100% agree with you on your comments, don’t get me wrong here. There are different ways we take to attain our financial independence. DGI is definitely one excellent approach.
      I’m not saying DGI is a bad approach but saying we should keep a check of our DGI portfolio with broad based market.

      I think I’m kind of in the same boat with you on my investments. Most of my investments are in broadbased index (slice and dice), I’m overweight mid-caps. Here is the reason why –
      I manage 20% of my investments (80% in index) mostly in DGI.

      Good luck !

    • says


      I’m a little pressed for time, so I’ll have to come back to that report.

      However, based on what you’re saying I recommend tax-advantaged accounts for most investors. This allows you to still participate in a dividend growth strategy without the tax drag. Furthermore, I also recommend index investing for most investors because of the necessary time and research involved in dividend growth investing.

      I hope that helps! :)

      Take care.

    • says

      Hi Anonymous. The goals are completely different. Whereas I love Vanguard’s approach to investing and accumulation (I use that approach on 40% of my holdings), I do NOT appreciate their view on spending (work hard for 30-40 years to accumulate enough to spend the same amount you do now over the next 30-40 years and hope you don’t die too old or else it might not work!). And if you search this blog for discussions of taxes vs IRA you will see that the discussion has taken place many times. It is basically if you only make x amount and live on it the government will not tax you and/or if you live on dividends and make above that amount you will be taxed at a lower rate then if you were living on taxable accounts and withdrawing from them X percent over time. I agree with DM about Indexing, dividend growth investing is not for everyone…most fall short to even understand the goals. Just as an aside, if you are interested in Vanguard, look at the holdings of the ETF VYM, and you can also see that the projected dividend yield of VYM is above what DM looks for when he is shopping for dividend producing companies as well. Best regards!

  20. says

    I liked this post, as I’m just a beginner, it would be hard for me to compare anything (yet). And If I could I wouldn’t.

    Here’s my 2cents:

    – By investing in dividends you’re bound to learn something from it so in 10yrs you will be a dividend investing master-guru(aka you will be earning more and more untill the day you die)

    – If you have a set date to retire early, I belive a throw in the income of say +-3k a year wouldn’t really matter, you know already how to live frugally.

    – There’s no tomorrow before it happens

    • says

      Life In Center,

      Thanks for stopping by.

      Over time, and as you gain experience, you’ll find what best suits your strategy and temperament. Some people love comparing their results against a benchmark of their choosing, some don’t. The only benchmark that really matters to me is dividend income. How much is it, how much is it growing by and how far away from paying for all of my expenses am i? These questions have nothing to do with the S&P 500 so I don’t bother comparing them.

      Best of luck! :)

      Take care.

  21. says

    DM, great post, “pluck the fruit”, excellent! I was trying to explain my Dividend approach to someone the other day and used the example of being able to take a trip to Starbucks once a month…on an investment capital base of around $1500 ($1500 * 3% dividends = $45 / 12 mo = $3.75 could afford something at Starbucks, not counting compounding or dividend increases) and they just stared at me! 😉

    • says


      Thanks for stopping by! I appreciate your perspective.

      I hear you on the Starbucks example. I once told a co-worker that I don’t have cable television because I would have to set aside about $25k and they just shook their head. Funny stuff.

      Best regards!

  22. says

    This has got to be one of the best pieces that you’ve penned thus far…great write up DM! I agree with it all. It’s unfortunate some of your responder’s haven’t seen the light yet…but keep preaching. I’ve created a forecast model the simulates price growth and dividend growth independently from each other because I was trying to figure out my theory that stock charts that display (total growth = divs + price appreciation) were misleading investors that focus on dividend income and growth.

    What I’ve observed proved to be correct. It’s not an exact model, because I can’t replicate the daily changes in stock price (it uses a yearly average increase), but useful data can be observed with averages.

    Here’s an example of a scenario. Scenario 1: stock price averages 10% growth and div increase averages 12% growth for 20 years. Scenario 2: stock price averages 5% growth and div increase averages for 12% growth for 20 years as well.

    100k invested in both scenarios with 3.5% entry yields $3,624.12 in divs reinvested qtrly after the first year.

    After the 20 years:
    Scenario 1 has a total valuation of $1,544,072.77 which equates to an annualized return of 14.67%. Scenario 1 annual dividend in year 20 was $81,452.06 and cumulatively totaled $532,732.96 in divs for a total annualized income return of 16.84%.

    Scenario 2 has a total valuation of $1,044,476.71 which equates to an annualized return of 12.45%. Scenario 2 annual dividend in year 20 was $150,640.77 and cumulatively totaled $771,646.27 in divs for a total annualized income return of 20.49%.

    The income in the second portfolio was almost double the income in the first scenario. As you’ve stated, who cares about the portfolio value as long as the dividend checks keep piling up you your brokerage account. David Fish through the champions list has proven that great companies can increase their dividends in excess of the 12% I used in my forecast.

    I used my example in a similar response on another blog a week or so ago…but the responders math above were grossly miscalculated and I wanted to expose them to this phenomenon. Maybe it might encourage some folks to create there own models for assessment. Its made a believer for me…and personally, I will be an accumulator of great assets for the rest of my life.

    Cheers to FI,


    • says


      Thanks for the thoughts and the math! I always appreciate some good math. :)

      Thanks as well for the compliments on the article. Even if you don’t agree with the premise, I at least hope you can appreciate the writing.

      We’ll see how I do over the long haul. The great thing is that all of my stock purchases, dividends received, sales and everything else is all public for the world to see. So anyone at any time can compare how I did to an index.

      However, I really feel that the S&P 500 and my portfolio are apples and oranges designed for completely different purposes, as I stated in an earlier comment. It would be like me comparing my lifestyle to my neighbors and wondering how he has a nicer car and cable television. It just has nothing to do with me or what I’m trying to do.

      If comparing yourself to a benchmark fits within your strategy I say go for it. Equally so, if index investing suits you better (and that applies to most people) I say the same. However, for most dividend growth investors that are seeking early financial independence I don’t necessarily think benchmarking yourself will result in anything value-added or actionable. If you’re concerned with the S&P 500 and trying to beat it you’ll be better off just investing in an index fund tracking it and be done with it, in my opinion.

      Cheers to FI, indeed!

      Best regards.

  23. says

    I really like this quote in the above reply, “If you’re concerned with the S&P 500 and trying to beat it you’ll be better off just investing in an index fund tracking it and be done with it, in my opinion.”


    Hard to argue with a statement that strong. If you care about total return and feel the need to compare yourself to the market: index. If you want to build a passive income stream: dividend stocks, rental properties, & bonds. Each are fine strategies but have nothing to do with each other. Try comparing rental properties to the S&P 500. It doesn’t make sense. Same with dividend growth, the only difference is that both S&P index funds and dividend growth portfolios are comprised of stocks.

    Why is it that people typically only use the S&P 500 as a benchmark? I never hear people talk about their bonds beating a bond index. Or their rental properties beating a rental property index. I think there’s a possibility we’ve been brainwashed into stock benchmarking. Perhaps it’s the master plan of financial industry so they can peddle mutual funds and ETFs to the masses? I don’t know.

    Take care!

    • says


      You hit it on the head. They are both fine strategies, but are apples and oranges. I’m looking to build passive income stream. It’s all about cash flow. If you’re looking to match the market, invest in an index fund that does so. However, be aware that even then you’ll lag due to fees and potential issues with when you buy into the fund(s).

      Great point there in regards to other indexes, especially a rental property index. You might be ecstatic to have thousands of dollars coming in every single month from a diversified set of rental properties, but then you’d be all bummed out if you found out all of the sudden you were lagging an index or benchmark someone just set up? Lunacy.

      Thanks for stopping by.

      Best regards!

  24. Anonymous says

    Great writing as usual DM. I work hard to make my dividend snowball get bigger. Right now it gives me about 4500$ in dividend every year. I cant save as much as I would like cause I got a family and 2 kids. Im 42 years old so I started a bit late, but my plan is to make a “moneymachine” that I can give my children when they grow up. Just think about it: how much will it give in dividends in 35 years :-)
    I only focus on the cashflow from my portfolio – I dont care about the Index.

    Keep up the good work!

    The Swede

    • says

      The Swede,

      Great job. You’re building a mighty snowball over there. Keep it up!!

      I’m with you. I focus on the cash flow. I track the portfolio balance every month on the blog for reference, but it really has nothing to do with what I’m trying to accomplish. Again, beating or not beating the S&P 500 has nothing to do with my ability to become financially independent. It’s all about how much passive dividend income I have coming in on my 40th birthday.

      Take care!

  25. Joan says


    I just wonder if you consider adding your buying price of stocks in your Freedom fund? It would be intresting to see your entry price on all stocks.


    • says


      Great suggestion there. I actually tried to add a column for cost basis at one point, but the layout of this blog was different back then and the margins wouldn’t cooperate. It shouldn’t be too difficult to do that now.

      I’ll think about it. I think it would add value. While you can see what I paid for everything because I publish all of my purchases (and sells), it would be a pain in the butt to actually track that information down.

      Thanks for the suggestion!

      Best regards.

  26. says

    Very interesting article (especially since I think the opposite :-) ).

    I think is very important to compare my investment return to a benchmark. It can be the S&P500 or something more specific. I rather compare my returns to dividend ETFs since they are closer to my investment strategy.

    Regardless if you compare your returns to the S&P500 or another index, the point is to know if you would have been better off investing in the index and do nothing or spend hours to build your portfolio. I understand that if you invest in the S&P500, you won’t grow a big dividend yield portfolio.

    But if you lag the index by 2% annually for the next 10 years, your portfolio size will be smaller and will generate less income anyway. What if you invest in the index for 10 years and only turn to dividend stocks the day you want to start cashing dividend payments?

    • says

      The Dividend Guy,

      Thanks for stopping by!

      I appreciate and respect your viewpoint. I just believe that a dividend growth portfolio and the S&P 500 are fundamentally different investment strategies. Comparing the two does nothing for me.

      I could see maybe comparing one’s portfolio to an ETF that tracks similar companies. But, if that’s what you’re after, why not just skip it all and invest in the ETF? Well, because I can avoid the fees and get a larger share of the dividends by investing in the companies myself. That’s just how I see it.

      As far as your last question, what happens if you index for 10 years and just when you’re getting ready to switch to a dividend strategy the market tanks? What about taxes from long-term capital gains? What do you buy? What if the market is overvalued? I prefer not to dance in and out of strategies. I’d prefer to partner with wonderful businesses and collect a piece of the profits. :)

      Best wishes!

      • says


        I am new to the idea of dividend growth, and it is all very intriguing. Your story makes me believe i can do the same and retire early if i start now (i’m in my late 20’s). Congrats for being so successful. Before starting it myself, i was wondering if you could help me understand something.

        My question is this: why not invest long-term in an index fund (like SPY) which we’ll assume grows by 10% per year, and a long time later, buy the large dividend stocks (like PM) once you can buy enough high-dividend stocks to finance your living expenses? My thinking is that you will end up with more portfolio value after those 20 years than with the 4.5% yearly growth of the dividend strategy. Since SPY has twice the growth rate over PM, you’d end up with more in the end.

        Thanks for the help!

        • says

          Curious Investor,

          That’s a good question.

          The problem lies within the short time horizon we’re talking about. If you’re interested in achieving financial independence/early retirement at a very young age (by 40), the biggest determiner of your chances to retire early will be your ability to save a large portion of your income – not your total returns.

          Furthermore, by investing in the SPY up front and then selling later you’re going to incur capital gains tax if you’re investing in a taxable account – which is likely if you’re pursuing this strategy. That’s a drag on your returns as well.

          Lastly, PM is an interesting comparison because the old Philip Morris actually trounced the S&P 500 over almost any long period of time. I believe Siegel pointed out that it was the best performing stock over the latter 50 years of the 20th century.

          Best of luck to you either way. As always, I actually recommend investing in a basket of index funds for most people because it’s easier and much less time consuming. And most people don’t want to retire by 40 anyhow.


  27. Anonymous says

    Wow – a whole article just to answer my question. I am flattered. !

    I think you are doing the right thing – setting a goal and measuring your progress against that goal. Personally I think this is the best way to accomplish things in life.

    Good luck

    Roger H

    • says

      Roger H,

      I was anxious to write an article like this. Your question piqued my interest even further. :)

      Thanks for the support. I think one can only set realistic, but challenging goals for themselves and measure their own success against their own goals. Comparing yourself to everyone else, for me, makes no sense. If one is really interested in what the S&P 500 is doing, then I would just recommend to invest in it and move on.


  28. says

    Mantra looks like I arrived late to this party! This is what happens when you work afternoon-evening shifts and sleep in. 😉

    I think this is a great post, but you’re really comparing apples and oranges here. You are essentially comparing a core dividend stock portfolio (a small portion of the S&P 500) to the overall broad market (which includes many stocks which are not dividend stocks).

    Comparing your portfolio to a dividend ETF like SDY might be more meaningful – I’d love to see a post on that. This would give you a more accurate benchmark.

    Like yourself, and many of the readers here I’ll certianly agree with you that spending your time comparing your returns to the index doesn’t make much sense either. Like yourself I’m pretty focussed on my monthly income and the predicatble cash flow I can generate for retirement.

    However benchmarking is an important aspect to investing, it does give you a gauge of where you are… But for portoflios like ours, its pretty hard to benchmark to an overall index.

    Dividend Ninja

    • says


      Hey, thanks for stopping by! I hear you on being busy. I’ve had so many 50+ hour weeks at the day job, just to be followed up by another 20 or so at home on the blog. It’s been a blur. :)

      I hear you on apples and oranges. That’s essentially my argument. However, I think the same pretty much goes for SDY. My quest is to build a portfolio with a reasonably reliable stream of rising income, with holdings in high quality companies with longstanding track records of increasing payouts. Question: what’s the 5-year dividend growth rate of SDY?

      It just doesn’t make sense to me to compare a portfolio built for a specific person with specific means in mind to a broad-based index designed to track the market, or a portion of the market.

      Again, just my take on it. I certainly don’t begrudge anyone else for benchmarking themselves to whatever index they feel comfortable with. I was only stating the reasons I don’t, and hopefully to give other investors who do the same a little reinforcement.

      Thanks for the perspective. Don’t stay too busy up there! :)

      Best regards.

  29. Anonymous says

    Fully agree that it’s the Income and Income growth that counts. If either don’t happen than my goal is not being met and I may consider a change. I rarely make changes because most of the company stocks I own do have a good history of DG and as long as the dividend isn’t cut I hold. I might even adding shares of a company even if the dividend is cut, given the right company.

    I only follow the stocks I own or want to own and could care less what the market or index is doing. What I look for is an entry price of addition price of the stocks I own. Like you say, buy when they are value priced.

    I still re-invest the dividends even though I’m retired as I don’t need the income. It’s really rewarding to record the dividends and increases. At some point I will begin drawing down some of the income.

    Great article!!

  30. Anonymous says

    Would like to add that in general Capital Growth follows Dividend Growth, and in almost every stock I own it’s Total Growth has beat the market.

    Those that invest in Funds and ETF’s must realize they are paying for the diversification (which I don’t believe is an advantage). I’d rather control which stocks I own and definitely glad I don’t have to pay fees. I consider even the smallest fee Lost Money, especially if your portfolio is high six figures.


    • says


      Congratulations on your success so far. It sounds like you’re in a great financial position if you’re retired and don’t actually need all of the dividend income your holdings are providing. That’s great!

      I hear you. I also do not really care what the broader market or one of the indexes are doing. I simply care about price as it relates to value and fundamentals. I try to buy great fundamentals at a price far below fair value – not outperform an index.

      And I agree with you in regards to total return. High quality companies that continue to raise dividends year after year tend to do well in terms of capital gains. Some years these companies will do worse than the broader market, some years better. Spending time worrying about this, in my opinion, is time that could be better spent elsewhere.

      Keep up the great work, and enjoy retirement. :)

      Best wishes.

  31. Anonymous says

    Before I retired I was in the retail investment business for 30 years. I had a few hundred million of other people’s money under my thumb. I had all the initials after my name. Your piece perfectly describes what I used to tell clients. How the S&P 500 performs is largely irrelevant. How well your investments match your need IS important.

    • says


      Thanks for that. I really appreciate your perspective, especially coming from someone “on the inside”. I think people get caught up in what everyone else is doing instead of worrying about their own goals and needs. I learned early on that comparing myself to others in terms of performance does nothing for me. Now if I constantly pick investments that have fundamental issues, then I’d have to reevaluate what I’m doing.

      Thanks again!

      Best regards.

  32. says

    DM–apologies if i’m repeating a question already asked, but do you calculate what your total return is each year, even if you don’t use that # to compare to the S&P? I’m not trying to beat the S&P, but if my total return was only 10-15% in a year that the S&P returned 25%, I might reevaluate my holdings to see why I underperformed so significantly. I also find that looking at other dividend investors’ portfolios (such as your own) is a great “benchmark.” If someone’s portfolio outperforms or underperforms mine by a vast amount, I want to understand why. Dividend investors who underperformed this year may have been too heavily invested in REITs, for example.

    Also, I would echo Joan’s comment above. If it’s not terribly difficult for you, I think that adding your cost basis to your portfolio does add value.


    • says


      I do calculate total return privately. I don’t compare it to the S&P 500, but I do like to look at the numbers against the historical return of the market. Otherwise, it’s really not of much help. I could take the numbers and extrapolate them out over decades and ogle spreadsheets with big numbers, but it’s impossible to predict things like this. Besides, past performance is obviously not a predictor of future results.

      Your example on REITs is a good one. If a dividend growth investor is retired and living off of their dividend income, and a heavy exposure to REITs allow them the type of income they need to sustain themselves, but they underperformed the S&P 500 should they now switch strategies? And who’s to say that REITs won’t kill the S&P 500 next year? I find all of that worrying just burdensome and distracting.

      I think I’ll add the cost basis to next month’s spreadsheet update. It seems that’s information people want to see. :)


  33. Anonymous says

    I’m not sure that I understand or agree (or necessarily disagree) with what you are saying here. At this point in life (28 years from retirement(my employer has a pension)) I don’t care where my money is coming from. The only thing that matters is portfolio value growth. An investment in an S&P 500 index fund is well diversified (you also still get dividends) and dividends are reinvested for an annualized ROI of 9 to 10% historically. Just focusing on dividend returns is shorting yourself a bit. At the absolute least, using it as a benchmark gives you an idea of whether or not you are investing your time well. If you are spending a great deal of your time and still not surpassing the returns of the S&P 500 (including dividends) over a given period, then you could certainly be better off to simply put your money there and focus on other money making opportunities. At retirement, your income would be provided by selling a small portion of the portfolio which at that point should be in something less risky than stocks anyway. Benchmarking the S&P 500 or any other benchmark is just good business sense.

    • says


      “At retirement, your income would be provided by selling a small portion of the portfolio which at that point should be in something less risky than stocks anyway.”

      That situation – selling assets above and beyond whatever dividend(s) an index fund would provide – is exactly what I’m trying to avoid. By investing in companies that routinely and aggressively raise their dividend payouts to shareholders, I’m hoping to live entirely off of the dividend income my portfolio generates. I’m planning on never selling any assets in retirement. Now, all plans can go to shit under the right circumstances, namely a health problem, but I’d rather have a good shot at avoiding any exposure to a volatile stock market in retirement, instead relying on more stable dividend payouts – which are a function of the overall health of companies, not the whims of traders.

      Best wishes!

  34. Richie stephens says

    What you have done sounds great and I would love to give this a try! It is very remarkable what you have accomplished and congradulations! As I read one of your post you were a average guy I am that same average guy who doesn’t have a clue the first steps I would need to take building a portfolio or who to even ask for help on this. I would start with the $5k also if I was able to understand the process of how to start something like this off. If you could point me in the rite direction and educate me a little bit that would be awesome!

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