There's an interesting discussion going on at PFBlog.com and Consumerism Commentary.

The whole thing started with an article posted at About.com, entitled "What It Takes to Become a Millionaire." Take a moment to read the article. What you'll find is that the author suggests that the path to millionaire-dom is paved by (1) saving 10% of one's net income over many years (in this case, from a salary of $50k/ year, over 20 years or more), and (2) getting 10% compounded annual returns from your investments (read: any employer contributions plus your returns from the stock market).

I notice that no one is disputing the "10% returns per year" part of the article, so I guess I'll take my cue:

Double-digit investment returns over any period of time — even a 20-year period — are not a given.

Yes, employer matches to 401k contributions will help you out. Tax deferral (IRA, 401k) will help you out. Tax reduction (Roth IRA) will help you out. Good investment management will greatly help you out. But you must remember to account for inflation, taxes (if applicable), fees and expenses, execution slippage, and a host of other things, too, which DO NOT help your returns. These things add up.

I'm currently reading a book entitled Bull's Eye Investing by John Mauldin. Mauldin isn't a perennial bear, per se, but he is a realist. In his book is an eye-opening chart of nominal stock-market returns from 1900 to 2002, put together by Crestmont Research. This chart takes into account all the buggies listed above (fees, taxes, slippage, inflation, etc.) as it computes the annual returns from the stock market over ANY period of time from 1900 to today. Thanks to the wonder of the internet, you can see the most recent (updated through 2003) charts here:

Crestmont Research Total Market Returns

There are five different versions of the chart. You can elect to show returns as if they were earned in taxable accounts, non-taxable accounts, factoring for inflation, or not factoring for inflation. Each chart has a diagonal black line so that you can follow investment returns over any 20-year period (which is what every investment advisor seems to throw out there when quoting market returns). You can, in fact, look at returns over ANY period of time.

Mauldin's argument for a sort of "stagnant" or declining market over the next decade or longer rests on the fact that market returns have historically been very poor when those returns are calculated from a beginning point where high P/E ratios are the norm. Low P/E ratios, historically, have been in the 10 to 13 range, he writes.

The problem? S&P 500 P/E ratios are currently in the 22 to 24 range, which is high by historical standards.

You can also see related market P/E ratios in the charts above, and thus see how market returns followed any periods of high or low P/Es.

Again: Double-digit annualized investment returns are not guaranteed ... even over 20 years. So don't count on them!