A price index measures one thing: what the constituents cost. It ignores the cash those businesses hand back to their owners. Since dividends are a real part of the return you would have received by simply buying the index and doing nothing, leaving them out makes the passive alternative look worse than it was.
The arithmetic, briefly
Suppose the index rises 7% a year and pays a 2% dividend yield that you reinvest. Compare yourself to the price index and you need 7% a year to “keep up”. Compare yourself to total return and the bar is closer to 9%. Over ten years, that gap compounds into roughly a fifth of your ending wealth — which is a strange thing to be casual about when the entire point of the exercise is measurement.
What we do instead
ValueBase computes your money-weighted return (XIRR) and your time-weighted return (TWR) side by side, then shows a benchmark line built from the S&P 500 with dividends reinvested, using your actual contribution dates. It also shows a third line: the same money left in cash. The first tells you what you earned, the second tells you how your decisions performed independent of timing, and the third tells you whether any of this was worth the effort.
“The big money is not in the buying and selling, but in the waiting.”Charlie Munger · quoted as philosophy, no affiliation implied
The uncomfortable part is that most portfolios do not clear the bar once the bar is set honestly. We think that is the point. A tracker that flatters you is not a tracker — it is entertainment, and this audience did not come here to be entertained.
How to read your own numbers
None of this tells you what to own. It tells you whether the way you are choosing what to own is working, which is a slower and more useful question.