Inflation-Adjusted Return

See: Real Return.

The average annual wage in 1905 was a thousand dollars. But you could buy a pint of milk for a penny, a horse for 10 bucks, and a house for five grand.

While that thousand bucks a year doesn't sound like much today, on an inflation-adjusted basis, the average wage today hasn't changed all that much—the average $40,000 a year on a percentage-basis buys you about the same as what turn-of-the-last-century dollars would get you just a year before the big San Francisco quake.

So when you look at investment performance, it has to be judged against whatever inflation did during that period (highly correlated to bond rates), and you then get a real return number that hopefully means something. In the modern era, i.e., last 50 years or so, inflation has averaged, eh, about 3% a year, maybe a bit less. The S&P 500 has averaged a return, ignoring taxes, and assuming dividends reinvested, of about 9% or so. And corporate bond rates have averaged, for BBB or better, something like 5% or so...just to frame the notion for how investing can keep you ahead of the inflation Grim Reaper of poverty.

"If you don't invest, you will not be best."