How inflation ravages stock market returns

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With inflation having been a non-issue for a number of years but starting to edge higher, it is opportune to revisit the impact of inflation on equity returns. Barry Ritholtz (The Big Picture) alerted me to VisualizingEconomics who constructed the chart below, showing the real and nominal growth in U.S. stocks since 1871.

Annualized gain since 1871:
Nominal stock price gain = 4.0%
Real stock price gain = 1.9%

Click here or on the image below for a larger chart.

In a further study, VisualEconomics also compared the real price index to the real total return (price change with dividends reinvested).

Annualized return/gain since 1871:
Real total return (with dividends reinvested) = 6.2%
Real stock price gain (without dividends reinvested) = 1.9%

Click here or on the image below for a larger chart.

Source: VisualizingEconomics (here and here), January 11, 2011 (hat tip: The Big Picture).

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More on this topic (What's this?)
Dividend Growth Stocks Protect Investors from Inflation
The Magic Inflation Rate = 5.3%
Read more on Inflation, P.S. M'bishi Constr at Wikinvest
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