Their actual return, of course, has mostly been negative. Over the past decade, equity investing hasn’t offered much of a premium. The market went up (the Dow hit another record high in the middle of the decade). But then it went down again. In finance terminology, we experienced a lot of volatility—the major indexes have fluctuated a lot—but not much real growth.

One possible explanation for this pattern is that the equity premium has eroded. Markets have grown more efficient over time, as more and better information—and the computer tools to analyze it—has become available. Meanwhile, the stock market has democratized. Modern diversified portfolios have reduced some of the risk of holding stocks, because even if a few companies fail, they won’t take your entire nest egg with them. Rather, the failures average out with the successes to produce a relatively steady rate of return. As defined-benefit plans—what your grandfather called a pension—have died off, people have poured their retirement savings into mutual funds that offer this sort of diversification. The deeper pool of money flowing into equity markets means that equities no longer need to offer a higher yield in order to attract money from bond and other securities markets.

The equity premium’s shrinkage may have another reason. Financial markets have an interesting feature that has undone many a trading strategy: once everyone starts believing something, it often stops being true. If you discover an arbitrage opportunity—otherwise known as a “price anomaly” or “free money”—it will be profitable only as long as few people know about it. Once it is widely known, bidders will rush into the market until the discrepancy is traded away. After that happens, future returns will be lower.

In other words, once everyone believes that the stock market offers high returns for relatively little risk, that notion stops being true. And everyone apparently does believe just that—even after the 2008 crisis, the price-to- earnings ratio of the S&P 500 remains near the top of its average historical range. Paradoxically, the current high price may be supported in part by a belief that the old equity premium still obtains. A survey done by ING Direct in March of this year found that, even after a decade of lousy returns and a spectacular market crash, more than a quarter of Americans expect annual returns in the stock market to average 10 to 20 percent.

If the return on equities really has fallen, this decline poses a big problem for the average investor who planned to stick 5 to 10 percent of his or her annual income into stock funds and retire comfortably. At an annual inflation-adjusted growth rate of 8 percent, savings of just 5 percent of your income for 30 years will leave you with a nest egg big enough to replace almost half your income when you retire. Saving 10 percent will make you really comfortable.