Today’s investors face a broader range of decisions than ever before. Many take the planning path of least resistance, using the nominal returns of various asset classes to develop a back-of-the-napkin asset-allocation strategy. They then apply that improvised plan across all investment vehicles.
Focusing only on nominal returns ignores the degrading effects of inflation, taxes, and investment expenses. And using a single asset allocation plan disregards the potential benefits of different available vehicles. In this, the 20th edition of our Study of Real Real Returns, we discuss the three major factors beyond nominal returns that investors should use in successful planning.
The chart below illustrates the Thornburg concept of real real returns. We begin with the nominal returns of the S&P 500 Index, and account for the effects of inflation, taxes, and investment expenses, using real-world data for the past 30 years.