Visualizing Economics has a nice infographic showing the nominal returns of the S&P 500 versus the real returns since 1871. The sad truth is that real returns were half that of nominal returns.
Annualized growth rate of since 1871:
Nominal stock price return= 4.0%
Real stock price return = 1.9%
We are often fooled by the wonder of rising asset prices. The sad truth is that we feel “wealthier” when our asset values increase even though the same dollar buys less goods. This is why governments love inflation, because citizens throw fewer tantrums about theft through inflation versus theft through direct taxes. They might even have silly smiles on their faces because the nominal value of their retirement plans went up…hooray! Some of the wind will be taken out of their sails when they figure out that food prices have hit an all time high…