How Germany’s stock market gives a false impression that it beats Britain’s

The longer the investment period you look at, the bigger the discrepancy. £100 invested in 1899 would now be worth £184 in real terms without the re-investment of dividends, but would be worth £28,232 with dividends re-invested, according to the influential Barclays Equity Gilt Study.

Even over the last 10 years the difference between the price return of UK stocks and the total return adds up to £4,500 for each £10,000 invested.

The level of the FTSE 100 is deeply rooted in the fabric of stock market discourse, so the dividend discrepancy has far-reaching implications for the behaviour of savers. The assertion that the UK stock markets it still below where it stood in 1999 has been made countless times over the years, to such an extent it is has now entered the pantheon of conventional wisdom, even though it is true only in a very limited sense.

As a result, investors without time to dig a bit deeper to get the full picture are naturally led to prefer other assets, in particular cash and property, to stocks.

The FTSE 100 is by no means the only leading global index which ignores dividends. In fact, most of the big ones do. The Dow Jones Industrial Average, the Nikkei 225 and the Shanghai Composite all only take share price movements into accounts.

The companies which calculate these headline indices also produce total return versions, which include re-invested dividends in their construction, though they hardly even get a public airing.

These are in fact the indices which fund managers use to benchmark their performance, yet you will find it hard to find anyone working in the financial industry who could tell you the current level of the FTSE 100 Total Return index.

The notable exception to the rule is the German DAX, where the headline index is in fact calculated on a total return basis.

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