The S&P 500 Index may not be all it's cracked up to be, according to Thornburg Investment Management. The firm, which has been publishing a study of “Real Real Returns” for the past 10 years, contends that when taxes, inflation and expenses are properly accounted for, the S&P 500 has returned an annualized 4.96 percent over the 78-year period between 1926 and 2004. That's a far cry from the nominal 10.43 percent annualized return that is so often quoted. The “real real” return on the Dow is even worse: 0.80 percent versus nominal returns of 5.55 percent for the same period.
Still, real returns have been better in recent years than historically, according to Garrett Thornburg, founder of the mutual fund company. “The Dow Jones actually was pretty good over the last 20 years,” he says. It had real returns of 7.17 percent. And the S&P 500 notched real returns of 6.21 percent. “So recently they've been much, much better than the long-term averages,” he says.