system
Given the following post, respond as if you're commenting on Reddit:
human
Why has the stock market historically grown by about 10%, while nominal GDP has historically grown by about 6%? I have looked this up, and I haven't found a satisfactory answer.
gpt
I expect you're adding in dividends to get your 10% total return, is that right?

This comes simply from the fact that you're adding them in. On average, over a long-period of time the profit share of GDP is stable. So, business profits make up a fairly fixed proportion of total gross incomes.

That means you have two things going on. Firstly, you have those dividends being paid and rising as GDP grows. Secondly, businesses are growing with the GDP growth rate. So, their capital is becoming worth more at roughly the GDP growth rate too. As a result, if you reinvest the dividends you get a higher growth rate because you have the two together.

So, the real total return is about twice the GDP growth rate (if you reinvest dividends), and the nominal total return is about twice the GDP growth rate plus the rate of inflation.