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David Bianco, chief US stock strategist at Bank of America Merrill Lynch, suggests that the investors made far less in the past 50 years than the S&P 500 suggests. As quoted in Bloomberg:

While the S&P 500 returned an average of 9.5 percent annually for the 50-year period, the comparable figure after all the adjustments [ed. trading and management costs, dividend and capital-gain taxes, and inflation] was a mere 1.3 percent, according to Bianco’s calculations. Both averages are geometric, a multiplication- based method often used to calculate average returns.

So, what should we make of all of these surprisingly meager returns?

Well, Bianco himself says that this signals that now would be a good time to buy US stocks and that stocks, given that inflation and trading costs are low on a historical basis, justify a higher premium to the market. He thinks the market has about 11% higher to run.

Whether Bianco’s numbers are right, what’s interesting to me — and for readers of this blog — is the potential connection between decrease in trading costs and future returns. Low commissions, tons of free content online, crowdsourcing, screening, piggyback investing, and trade mirroring are part of this process.

Disclosure: No positions

Source: Investors Made Far Less in Past 50 Years Than S&P 500 Suggests