The stock market is nothing more then a claim on a future stream of dividends over a roughly 50 year time horizon. The longer the investment horizon the greater

The stock market is nothing more then a claim on a future stream of dividends over a roughly 50 year time horizon. The longer the investment horizon the greater the uncertainty and the greater the volatility. To compensate for that investors typically demand higher returns. Yields on 30 year bonds are typically higher then 10 year bonds. Long term returns on the stock market can be broken down into two categories: - Increase in corporate earnings - Increase in the price that investors are willing to pay for those earnings Increases in long term corporate earnings are constrained by long term growth in GDP unless earnings as a percentage of GDP increases. GDP is a function of demographics and productivity increases. Assuming that future returns will match historical returns is a bet that GDP growth rates will be close to historical trends along with earnings as a percentage of GDP will continue to increase. Demographics are long term trends that can be mostly predicted 20+ years into the future (you can’t go back in time and make a baby) and are mostly unfavorable compared to historical norms (lower percentage population in prime working age). There is also a limit on corporate earnings as a percentage of GDP unless taxes and wages go to zero. So a bet on future returns matching historical trends is essentially a bet on a massive productivity growth across all sectors of the economy over the next 50 years. In addition the bulk of that productivity growth will need to fall into corporate coffers rather then tax revenues or wages. And it will need to sustain that over a 50 year time horizon.