No. of Recommendations: 13
If you merely don't play too much in bubbles, a monkey with a dartboard can probably achieve inflation + 6.5%/year in equities.
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Do you know where I can get one of those monkeys?
The figure is merely what the average US stock returned in the average year in the 20th century. Things did get gradually more expensive, so that might be a slight overestimate, but probably not by much.
As for the monkey, a pair of dice ought to do it.
Use them to pick (say) 30-100 stocks in any handy index. Buy equal dollar amounts of the stocks it picks. Reconstitute the portfolio every year or two, selling stuff no longer in the index.
Minor improvement: Always use an index list that's at least 6 months old, and don't trade around end June (Russell index reconstitution date). New additions to major US indices are statistically horrible performers for 6-24 months, and newly ejected stocks have on average been outperformers for months afterwards.
The method above should beat the S&P 500 handily over time, with very high odds, for a variety of reasons.
For those insisting on buying an index fund, a reasonable expectation for your forward real total return is the initial nominal dividend yield, plus the real GDP growth rate during your period of ownership, [plus or minus a one-time amount for the valuation change between your start and end dates, annualized across that period], minus about 1%/year. The 1% is the drag from the way US cap weight indexes are constructed and reconstituted, and a few basis points for fund costs.
Jim
