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> all market stock index fund should never return more than 4% above inflation why? what is special about 4%?

• milesvp 5y ago
  It's sort of a historic adjusted return for annualized stock data. It also roughly matches a healthy 3% GDP growth of a "developed" country and still have some room for added risk. If you want to sort of gross rank investments in terms of returns, I was taught in my econ classes, you first look at government bonds as the lowest risk, and expect to make less than 0.5% return after inflation. Next you look at the company bond market where you can expect to 0.5%-1.5% but take on considerably more risk. Then you look at company stock markets where you can expect to make 3-4% after inflation but at the cost of even more risk. After that you start getting into things like junk territory, where you can make a killing, but more likely you'll lose your investment. These numbers may not hold in any given year, and certainly don't apply to markets that are able to sustain greater than 3% GDP growth for multiple decades in a row (usually because they are able to play "catch up" technologically). But once you're at the top of the S curve, competition sort of drives down the returns you can realistically get in investment markets.