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Historical S&P500 Returns vs. Inflation vs. GDP

Posted on 7/11/13 at 9:42 am
Posted by Cmlsu5618
Destin, FL
Member since Sep 2010
3763 posts
Posted on 7/11/13 at 9:42 am
This is a question that I've thought about for a while here... Why is the S&P historically able to generate an average 6-7% RoR, when inflation and GDP growth are typically around 2-3%?

I'm not sure about money supply figures, but I would imagine average MS growth is around the 2-3% inflation target.

How is the stock market continually able to generate returns much greater than inflation and GDP growth?
Posted by LSURussian
Member since Feb 2005
126966 posts
Posted on 7/11/13 at 9:46 am to
The value added from the invested capital had better be greater than inflation over the long term or investing would cease.
Posted by BennyAndTheInkJets
Middle of a layover
Member since Nov 2010
5607 posts
Posted on 7/11/13 at 10:05 am to
Because you always want to be compensated for taking risk. If you only made as much as the economy grew or just enough to keep purchasing power steady, why would you take more risk?

People have to be incentivized to take risk, that goes outside of just investing into entrepreneurship and even social programs. Why would I take a risk starting a business when I pay all my profits in taxes or why would I look for a job when I can just keep getting paid by social programs?

"Greed....for lack of a better term... is good."
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