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How reinvested dividends and cap gains amazed me today

I happen to be looking at my holdings in my roth today at ML, and I saw something that seemed to make no sense to me at all until I broke it down. My utility fund FRUAX had a higher return than my biotech fund FBTIX , both bought in February 2013. I thought to myself, there is got to be something wrong here. I know biotechs have been in the dumper the last year, and especially the last 6 months, but how could a utility fund beat it? I went back and added up the dividends and cap gains over the three year period and Voila it was plain and simple. Quarterly dividends and regular cap gains reinvested turned a 20% three year gain on original shares bought into a 43% total return over three years. Then I remembered that over time 40% of the S + P gains are due to reinvested dividends and cap gains. Duuuhhhhhh. It may have been wise to sell my biotech fund when it peaked in July 2015, but who knew it would drop like a ton of bricks in less than one year? Its long term money, so just hope it finds its way back after the geo political issues become clearer. After all, we are all getting older and doubt if demand for new drugs will go down over time.

Comments

  • @slick: You've learned the lesson that I was taught some 40 years ago, that is, dividends are the mother's milk of investing !
    Regards,
    Ted
    P.S. I dumped FBTCX yesterday, but still holding PRHSX.
  • I hold HQL and THQ, medical and biotech closed-end funds, in my Roth because the quarterly distributions, when reinvested, are a nice cushion against the volatility. These days my distributions are buying cheap new shares. I also think the sector will rebound.
  • Capital gains stocks are overrated. Talking heads like to talk about them. Dividends and bonds have been golden since the early 80s
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