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The Markets
Investing in U.S. stock markets during 2015 was a bit like riding a mechanical bull. Markets jolted up and down but, once the year ended, investors were almost where they had started.
The Standard & Poor's 500 Index (S&P 500) entered 2015 at about 2,058. It rose as high as 2,130 during May and fell to about 1,867 in August. As the year ended, the index was almost at 2,044. It would have finished in negative territory if it weren't for dividends. With dividends included, the S&P 500 was up 1.4 percent for the year, according to Barron's. Without dividends, it was down 0.7 percent.
Market performance left plenty of room for speculation about what the future may hold. Barron's explained:
"The problem isn't just that the S&P 500 finished flat but that it finished trendless...So, as 2016 begins, it's very easy to impose whatever narratives we want on the market. For the bears, the fact that the market hasn't been able to hit a new high, and that small caps have underperformed large, is a sign that the market is peaking...Still, there's enough good news to keep the bulls heartened...The price of oil, which pulled down S&P 500 earnings in 2015, might be stabilizing...And, remember, Congress just passed a spending bill that could pick up the stimulus baton from the Federal Reserve."
Regardless of whether you lean toward bullishness or bearishness, the performance of the S&P 500 during 2015 reinforced the value of dividends. When it comes to investing in stocks, there are basically two ways to make money. First, the value of a company can increase and investors can earn capital gains. Second, investors may receive dividends, which are a portion of a company's earnings its board of directors chooses to distribute to shareholders.
During the past several years, as interest rates have remained persistently low, dividends have become important to many investors as a source of income. They also are a critical component of total return. From 1926 through 2014, dividends accounted for more than 40 percent of the total returns generated by the S&P 500.
Data as of 12/31/15
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1-Week
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Y-T-D
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1-Year
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3-Year
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5-Year
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10-Year
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Standard & Poor's 500 (Domestic Stocks)
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-0.8%
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-0.7%
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-0.7%
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12.8%
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10.2%
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4.9%
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Dow Jones Global ex-U.S.
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-0.5
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-6.6
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-6.6
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0.0
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-1.0
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0.4
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10-year Treasury Note (Yield Only)
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2.3
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NA
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2.2
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1.8
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3.3
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4.4
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Gold (per ounce)
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-0.9
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-11.4
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-11.4
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-13.9
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-5.5
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7.2
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Bloomberg Commodity Index
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0.1
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-24.7
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-24.7
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-17.3
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-13.5
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-7.5
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DJ Equity All REIT Total Return Index
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0.2
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2.8
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2.8
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10.6
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11.7
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7.1
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S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron's, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
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