Buzz
It’s widely accepted that the stock market typically yields a 6-7% return over time. But how is this number determined, and how reliable is it?
Unsurprisingly, this figure is derived from the insights of the most successful investor, Warren Buffett, who shared his reasoning with Bloomberg:
Buffett explained that the economy, as measured by gross domestic product, is expected to grow at an annual rate of roughly 3 percent in the long run. With inflation at 2 percent, nominal GDP growth would rise to 5 percent. Stocks are likely to follow this trend, and dividend payouts should increase the total return to 6 to 7 percent, he stated.
As Trent Hamm from The Simple Dollar highlights, historical data supports the accuracy of this long-term figure as well. You can verify this yourself.
The data is clear, but Hamm raises a crucial point: nothing is ever certain, and as the saying goes, “past performance is not an indication of future results.” Nonetheless, this is the best projection for long-term returns and has proven to be fairly accurate so far. For more information, check the links below.
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