for future returns from stock and bond markets are highly influenced by their historic returns. Most investors are familiar with the average nominal past results but less familiar with the more relevant information: past real, after-tax results. Individuals generally quote nominal rates when discussing market returns and bond yields. Newspaper and television reporters use nominal rates to describe stock market results. Investment advisors and brokers use nominal returns in performance reports and advertisements. It seems that the entire financial services industry is focused on nominal numbers. A reader is unlikely to find a single quotation of real, after-tax results anywhere in the Wall Street Journal. However, real after-tax results are more relevant to taxpaying investors. An interesting exercise is to adjust historic market returns to reflect the impact of inflation and taxes. The adjusted results demonstrate how difficult it is to grow wealth net of the combined impact of taxes and inflation. It is even more difficult when spending requirements are included. HISTORIC RETURNS ADJUSTED FOR INFLATION AND TAKES We examined data on monthly U.S. stock and bond market returns since 1926 (Ib-botson Associates, 2003). The United States has had many bullish and bearish markets over the past 76 years. Overall, it has been a rewarding experience for investors as the stock market has multiplied wealth. This period contained many different market scenarios, thus making analysis more valuable. However, one should keep in mind that this was a period of extraordinary growth of the economic and political power of the United States. Future returns may not be as robust. The last two decades of the century were particularly robust. Surging corporate earnings and rising price-to-earnings multiples have produced market returns greater than 20 percent in 11 of the 20 years. In addition to creating wealth, this boom gave many investors inflated expectations of future investment returns. We will look at three asset classes: stocks, bonds, and cash. These will be represented by the past performance of large-cap domestic stocks, intermediate-term gov-