18 hours ago
- Stock market historical arithmetic mean return of 12% before inflation is misleading because returns compound geometrically.
- Adjusting for geometric compounding gives an 8-11% compound annual growth rate (CAGR) before inflation.
- Subtracting 3-4% inflation yields 4-8% real returns.
- Further subtracting 1-3% for holding costs, transaction costs, and taxes gives a net CAGR of 2-6%.
- The midpoint of this range is 4%, a more reasonable assumption for financial calculations.
- A comment notes that the S&P 500 is not the full stock market; it only covers large-cap US equities, and tax/costs vary by investor.