Your index fund's 10% return is really closer to 7%. A debased dollar takes it lower still.

If you have spent the last few years watching your S&P 500 index fund climb, you have probably also noticed that the gains do not seem to go as far as they used to — the statement is up, and yet the same renovation, the same car, the same year of college costs noticeably more than it did in 2020. That nagging gap is not your imagination, and it is not a rounding error. The plan most people in their 40s and 50s are following — put money in a low-cost index fund and let it compound — still works. But "about 10% a year" quietly assumes one thing that has not held lately: that the dollar you measure those returns in holds its value.

Over the long run, U.S. large-cap stocks have returned roughly 10% a year on average, including dividends. Strip out long-run inflation of about 3% and you're left with something closer to a 7% real return. That real number — not the headline — is what actually grows your purchasing power. And in the last few years, the gap between the two has widened in a way most savers never see on their statement.

The measuring stick is shrinking

Returns are denominated in dollars, so the dollar has to be stable for the number to mean what you think it means. It hasn't been. In response to the pandemic, the M2 money supply expanded from about $15.4 trillion in February 2020 to roughly $21.8 trillion by April 2022 — a 41% increase in just over two years, the largest monetary expansion in the modern record.

More money chasing the same goods does what it always does. The cumulative effect: prices rose roughly 24% from 2020 to 2025, and a dollar lost close to a fifth of its purchasing power over that stretch. The chart below is the same story from the dollar's point of view — a long, grinding decline that steepened sharply this decade.

Two problems hiding inside a great long-term bet

The first is the one above: a chunk of that nominal 10% isn't getting you ahead — it's running to stay in place against a debasing dollar. The second is more structural. An index fund is a one-way bet: it only builds wealth when the market rises. That's been a fine assumption across a 40-year tailwind of falling interest rates — but it isn't a law of nature.

Ask anyone who started investing in 2000. From the dot-com peak through roughly 2013, the S&P 500 went more than a decade with almost no real price appreciation — a "lost decade" in which buy-and-hold compounding simply didn't happen. The averages eventually recovered, but averages don't pay your bills on the timeline you actually need them.

Index investing is a bet that the market goes up and the dollar holds. Lately, only one of those has been reliable.

None of this means an index fund is a mistake. It is a sensible core, and for most savers it should stay the core. The point is narrower and harder to argue with: a single holding that only makes money when the market rises, denominated in a currency that is losing value, is carrying two jobs it was never built to do. It has to beat inflation and it has to depend on the market going up — at the same time, with the same dollars. For most of the last forty years both bets paid off together, so no one had to separate them.

Which raises a question most retirement advice never quite gets to. If the weakness is that everything you own rises and falls with the same market, no amount of refining that one bet removes it. What removes it is a second source of return that does not depend on the market going up at all — one that can keep working in the exact decade your index fund goes sideways. The harder question is whether such a thing can be built without simply trading one set of guesses for another.

The engine that keeps working when the index doesn't

That last question is the one Vector Capital was built to answer. The two gaps this article describes — a holding that only pays when the market rises, and nominal gains quietly eaten by a debasing dollar — are not problems Vector tries to forecast its way around. It does not try to call the next move. Vector Capital is a systematic, market-neutral approach: a fixed rule set, defined in advance, that takes positions long or short across stocks and futures based on what the rules read in the data, not on a view about where the market is headed. Because it can be short as readily as long, it does not need the S&P to rise in order to make money — which is precisely why it can keep working in the kind of 'lost decade' where your index fund goes sideways.

That is also what separates it from the index fund's second weakness. A return stream that does not depend on the market's direction is not forced to merely keep pace with the dollar's erosion; the aim is to compound on top of it. It is not a replacement for your core holding. It is the second source of return the core was never built to provide — and it is the part of the portfolio still working in the years the core does not. The figures, and the drawdowns that came with them, are shown below; they are worth reading with the same skepticism you would bring to any track record.

How it actually makes money — whether the market goes up or down

Most people know only one way to make money in markets — the way they were taught. You buy something, a stock or a fund, and you wait, hoping it is worth more later than you paid. When it rises, you sell, and the gap is your profit. Buy, wait, sell higher. It works — but look at the catch buried inside it: you only win if the price goes up. If it falls, or sits flat for years, your money sits there with it.

There is a second way to make money, and most people never use it: you can profit when a price goes down. You take a position that pays off when something falls instead of rises — that is called going "short." Owning the normal way is going "long." Do both, and you can win whichever way the market moves, not just one.

"Market-neutral" means holding both kinds of position at once — some that pay when prices rise, some that pay when they fall — balanced so the market's overall direction barely matters to you. Picture a shop that sells both sunscreen and umbrellas. It does not need to guess tomorrow's weather; it makes money either way, as long as people keep coming in. A market-neutral system is the same. It does not need the market to go up. It needs the market to move — and aims to be on the right side of those moves, in both directions at once.

That is why returns like the ones below are even possible. An ordinary portfolio waits for one big upward move and prays nothing knocks it down first. A market-neutral system takes its profit from the movement itself — and movement is exactly what frightens everyone else. It is why a chaotic, fearful year like 2025 was the system's strongest, not its worst: more fear meant more movement, and more movement is more to trade.

The guarantee almost nothing else in finance will make

Now the part almost no one else in finance will put in writing. Vector backs the system with a 12-month satisfaction guarantee: if you are not satisfied with your first year, you get your money back.

Now think about everything else sold to people building wealth in their 40s and 50s. A bond locks your money up for years and hands you a fixed coupon — no refunds. A whole-life policy can take a decade just to break even, and surrenders at a loss if you leave early. An annuity charges you to get your own money back slowly. None of them — not one — gives you a year to decide whether it actually worked and then returns your money if it didn't. That simply isn't how financial products are built. The house does not hand the chips back.

A guarantee like that only gets offered by someone who has watched the system work across enough conditions — calm markets, crashes, melt-ups — to stand behind it with their own revenue on the line. It takes the risk off your side of the table and puts it on theirs. That is a very different proposition from being shown a number and asked to trust it.