Consider this benchmarking approach.
For example, a $100,000 mutual fund portfolio returned $1,300 to $1,500 in a mix of dividends and capital gains during 2016. It’s a mix of mutual funds that are well rated by MorningStar. Now compare this to the dividend returns from purchasing a stock directly. Disclaimer – This is not a suggestion to purchase a single stock. That’s risky. To keep the benchmarking math simple, we’ll look at one yield at a time. And the math is somewhat fudged for the moment because I’m not going back in time to compare the January 2nd price for each stock to accurately determine how many shares could have been purchased with $100,000.
But now for the (slightly fudged) shock.
Looking at one example stock with a current yield of 1.75% yield, it would return about $1,700 a year. How about the 2% yield stock? Just under $2,400. Hint it keeps rising.
Mutual fund dividends are harder to estimate because it’s all a black box (at least for the common ones I’ve looked at). And then there’s the time that the dividend payment gets skipped. Of course there is no guarantee with stock dividends either, but if they have a long payment history and solid financials, the forecasting is clearer. And the pricing valuation will be punished for reducing or skipping that projected payment.
So go take a look back at some old statements for how much your account(s) was worth at the beginning 2016, and how much you received in dividends + capital gains over the course of the year.
For that (fudged math),
Look up the share price and current annual dividend for a few different stocks
Dividend yield % = (Annual dividend / current share price) * 100
Potential shares = Account value / current share price
Estimated annual dividend = Potential shares * annual dividend
So how did it turn out? I have to admit when I did this focusing on a specific mutual fund the comparison looked more favorable towards the mutual fund. When I did at the full account level, that’s where I saw the disconnect. Some of the better performing mutual funds overshadowed the weaker ones. Conceptually that could be true for stocks as well.
This is not to say “don’t invest in mutual funds”, and some years are better than others. But when looking at this from a long game perspective, the growth of in the number of shares compounds the returns. Over time the prices will fluctuate, but units keep growing. And given the mutual funds are potentially investing in the same stocks that you may invest in directly… there’s probably a comparable trend between the two.