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Dividends, like increased stock price, are just another equivalent way for shareholders to gain value (with some tax differences). Many investors reinvest the dividends and so never "see" them.

Of course there are many market indexes that we can follow, but why is there more attention on the S&P 500 than the S&P 500 with dividends?

Another point: Inflation affects the real value of stocks. If I am simply comparing two investments in a given year, I can ignore inflation, but when I track an index over decades, X% annual growth in the 1970s compared to Y% in the 2000s is meaningless if one ignores inflation.

So why is there more attention on the S&P 500 than on the S&P 500 with inflation?

Joshua Fox
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TL;DR: Use raw data to enable apples to apples comparisons

The problem with inflation is what definition of inflation you're going to use and whether you (others) think that measurement of inflation is the correct version. It also can "skew" the data since the way inflation is measured changes over the years.

If you are using the S&P 500 index return data for comparison purposes then you want to use the base data. Each person can then adjust these results based on their own criteria.

Why the CPI is a problem

"Over the years, the methodology used to calculate the CPI has undergone numerous revisions. According to the BLS, the changes removed biases that caused the CPI to overstate the inflation rate. The new methodology takes into account changes in the quality of goods and substitution. Substitution, the change in purchases by consumers in response to price changes, changes the relative weighting of the goods in the basket. The overall result tends to be a lower CPI. However, critics view the methodological changes and the switch from a COGI to a COLI as a purposeful manipulation that allows the U.S. government to report a lower CPI."

FrankRizzo
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For inflation, FrankRizzo's answer is good.

For dividends, the situation is very different. The standard "price return" measure used for indices like the S&P 500 includes the price drops due to dividends but not the dividends themselves. This is indeed arbitrary and not a good basis for comparing investments with different dividend yields. The only excuse is that dividends in recent decades for a large part of the stock market have been a fairly small (but not negligible!) fraction of total returns.

To properly compare different stocks, bonds, and indices, total returns including all cash flows (dividends and/or interest) should be used. In particular, this is the rule for reporting mutual fund returns. People should be more widely quoting things like the S&P 500 total return index.

nanoman
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