05-24-2015, 08:20 AM
It seems like every time I log into Seeking Alpha there is an article that DGIs are doing it wrong, since they are not looking at the true measure of investment progress, which is total return.
I don't understand this mania for total return. Given that total return is the sum of capital gains and dividend income, the only time total return has any relevance is when you sell a stock.
The key problem is that capital gains are unknowable. You can not plan for capital gains. An unrealized capital gain is meaningless if the stock price falls tomorrow. Even the historic long term trend of capital gains is in jeopardy due to baby boomers selling stock to fund their retirements, increasing cost of resources used by the industrial revolution, and other issues with American business (such as the curtailing of employee training). I am not trying to be a Debbie Downer, but capital gains is not a slam dunk. My personal assumption for investments is that capital gains will be sufficient to cover inflation.
Another issue I have is that capital gains are being emphasized at the top of a bull market. This is illogical to me. Isn't this the time when income should be emphasized?
I don't understand this mania for total return. Given that total return is the sum of capital gains and dividend income, the only time total return has any relevance is when you sell a stock.
The key problem is that capital gains are unknowable. You can not plan for capital gains. An unrealized capital gain is meaningless if the stock price falls tomorrow. Even the historic long term trend of capital gains is in jeopardy due to baby boomers selling stock to fund their retirements, increasing cost of resources used by the industrial revolution, and other issues with American business (such as the curtailing of employee training). I am not trying to be a Debbie Downer, but capital gains is not a slam dunk. My personal assumption for investments is that capital gains will be sufficient to cover inflation.
Another issue I have is that capital gains are being emphasized at the top of a bull market. This is illogical to me. Isn't this the time when income should be emphasized?