What the S&P 500 Can Teach Us About Reinvested Dividends | Personal-finance

The S&P 500 is hands-down the most-followed index on the stock market. Tracking the 500 largest public U.S. companies by market cap, the S&P 500’s performance is often used interchangeably with the stock market’s performance as a whole. There are many great lessons to be learned from the S&P 500, but few are as important as the power of reinvested dividends.

The S&P 500 often reigns supreme

Since its inception in 1957, the S&P 500 has consistently provided long-term returns that few stocks have come close to duplicating. In fact, the S&P 500 has become the standard to the point that when professional investors on Wall Street put together funds, they often do so hoping to outperform the S&P 500. Despite all the data and technical resources at their disposal, most fail to do so over the long run.

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Warren Buffett famously bet a hedge fund manager $1 million that the S&P 500 would outperform a group of hedge funds over a decade, and by the ninth year, the S&P 500 had posted cumulative returns (total returns over a set span) of 85.4% while the hedge fund average cumulative return was 22%. Three of the five funds…

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