Common Sense on Mutual Funds, Updated 10th Anniversary Edition

by John C. Bogle

We can use the historical data to answer a simple question: Why have stocks provided long-term real returns of 7 percent? Answer: Almost entirely because of the rising earnings and dividends of U.S. corporations.d The sum of real dividend yields and earnings growth generated during 1871-1997, adjusted for inflation, equals 6.7 percent in real terms. In other words, the total long-term real return on stocks derived from dividend yields and earnings is virtually identical to the 7 percent real return actually provided by the stock market itself. All other factors combined have almost inconsequential impact on the returns provided by these two fundamental factors alone.