Vanguard found John Bogle says investors should view stock market numbers with skepticism, particularly in terms of historical market returns being used as a guide for the future.

“Even if we accept the belief that past market returns are an accurate representation of reality, the idea that future returns will centre around the past is an illusion,” Bogle recently wrote for the Financial Times. “During the past century, for instance, the US stock market has provided an average annual return of about 9 per cent — 4½ per cent from dividend yields and 4½ per cent from earnings growth. But today’s dividend yield is only about 2 per cent, meaning that a critical component of the stock market’s return has been slashed by more than one-half.”

Bogle says that when you add that 2% yield to a future earnings growth rate of 5% (based on the idea that earnings growth historically mirrors gross domestic product growth), “reasonable expectations for nominal returns on stocks during the coming decade are likely to centre around 7 per cent, several percentage points below the long-term norm.”

Bogle also says that using a nominal return is misleading. Inflation, management fees, transaction costs, and other fees have combined to reduce the 9% nominal annual U.S. stock market return over the past 50 years to a real return of just 3% per year. “These are not just arithmetic errors; they have powerful real-world implications,” Bogle writes. “Individual investors who rely on the historical stock market returns presented by mutual fund marketers will be shocked at the paltry amounts they’ve accumulated in their retirement accounts. Corporations too will face the same shock as shortfalls in pension plan accumulations will have profoundly negative implications for their financial statements.”