Ask Colin

The Accumulation Index does not include franking credits, yet they are in your results which are compared to the accumulation index. Is this the correct comparison?

You are correct that I include franking credits in my returns figures. I do this because I am trying to present a true before tax return, which can be compared to before tax returns from other asset classes. It would be better perhaps to show an after tax return, but that is quite complicated and there are many alternatives. Although Vanguard have started showing after tax returns, the industry generally shows before tax returns.

I have compared my return to the Accumulation index, with the full knowledge that it is not a strict comparison and that it is even slightly in my favour, in the sense that it may tend to make my return look better than it is. There is no index that gives a direct comparison. The straight price index is only applicable to a pure trader, because it only measures capital gain. The accumulation index is as close as I can get to an index that measures what I do as an investor harvesting total return (capital gain plus dividends).

So, the choice is an unsatisfactory one. Exclude franking credits and have a direct comparison to the index, but not a direct comparison to other asset classes. Or have a direct comparison to other asset classes with the disadvantage of having a less than satisfactory comparison to the index. Since I am not explicitly aiming to beat the index – rather I am aiming to match the long term return for the index over decades – you should regard the comparison to the index as imperfect, but a rough guide as to how I have gone. Nothing more. The real decision we have to make is to invest in shares, or in something else. The return I am showing is a good guide to what I am getting from shares, which can be compared to other types of investments.

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