0

I am trying to understand the average annual returns on this index fund: VFTSX according to its data on Vanguard's Price & Performance page.

It shows, under "Average annual returns", the following table: VFTSX average annual returns table which shows a 1 year return of 10.24%

I am looking at my account history for this fund, and I am trying to figure out how the math was done to come up with a 1 year return of 10.24% mentioned above.

Here are my dividends for VFTSX over the year of 2016: VFTSX dividends

  • 3/16/16: $109.40
  • 6/16/16: $101.88
  • 9/16/16: $101.05
  • 12/23/16: $120.87

I looked at my account balances by date for VFTSX and saw:

  • 3/15/16: $25,540.33
  • 6/15/16: $26,248.94
  • 9/15/16: $21,175.42
  • 12/15/16: $23,140.86

Averaging those four balances out comes up with ($25,540.33 + $26,248.94 + $21,175.42 + $23,140.86) / 4 = $24,026.39

The sum of the dividends is $433.20

As a percentage of my "average" balance for the year, the dividends come to $433.20 / $24,026.39 = .018

So that's 1.8%, which I am trying to compare to the 10.24% from Vanguard's reported "average annual returns". This fund has an expense ratio of 0.22%, but that is nothing compared to how far off these two percentages are. I sense I am missing something very fundamental in how "average annual returns" is calculated. What am I doing wrong?

6

The reported returns include the growth of the fund, not just the dividend yield.

These are approximate numbers, but suppose the fund opened at $13.16 per share on Jan 1, 2016, and by Dec 31, 2016 it closed at $14.26. It also paid out 4 dividends throughout the year: 0.076+0.066+0.051+0.055 = $0.248. The return is (14.26 + 0.248)/13.16 = 10.24%

If you bought 1500 shares on Jan 1, it would have cost you $13.16*1500 = $19740. During the year those 1500 shares would have paid out $372 in dividends, and at the end of the year they would be worth $14.26*1500 = $21390. So your investment has increased in value by $1650 and you've earned $372 from it over the course of the year, for a total return of $2022, which is 10.24% of the $19740 initially invested.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.