Part 2/8:
The commonly cited 10% annual return stems from historical data, particularly from the performance of US stocks between 1950 and 2023. During this timeframe, US stocks delivered a nominal annualized return of 11.32%. However, when considered over the last 20 years, the total US market’s return was only a 9.81% annualized.
Nonetheless, the essence of this figure lies in the distinction between nominal and real returns. While nominal returns are the percentage increases in market value, they do not account for inflation, which ultimately affects purchasing power. The real returns provide a more accurate representation of an investment's performance post-inflation.