# How are average annual returns calculated on an index fund?

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: 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:

• 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?

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.