SPY cannot deliver a 10.5% return in a rational economy due to high valuations requiring unsustainable margin or multiple expansion.

I thought we peaked in 2021, which seemed entirely accurate when the S&P 500 fell by 18 or 19% and the Nasdaq by 35%, but we bounced back with two consecutive 25% growth rates.

In 2021, you had a 10-year period in which the S&P 500 index had made gains of 16.6%. It witnessed an explosion in profit margins and valuation multiples. There wasn't much revenue growth, but the market was trading at 22.8 times a record profit margin of 13.3%.

Meanwhile, it experienced a significant decline in margins in 2021, followed by a recovery; So we're back to 12.8% at the end of the year. We're not at the 13.3% level, but we're close, and the multiplier is higher. You are now at 26 times.

So, if you keep the margin constant over the next 10 years at 12.8%, that would require a P/E ratio of 43 at a margin of 12.8%, and then you would essentially get your sales growth and what starts as a dividend yield of 1.2%.

So, prices are so high that the dividend yield is low.

If you do it at the other end, by getting everything through multiple expansion...or margin expansion, you would raise the margin from 12.8% to 20.7% while keeping the multiplier at 26.

If you simply do a 50/50 distribution and combine multiple expansion and margin expansion, you raise the margin to 16.4% and the multiplier to 33.3.

For me, there is no way to achieve a 10.5 percent return unless you are in a state of hyperinflation and have tangible assets to counteract this extremely high inflation. Otherwise, if you have a rational economy, there is no way to achieve a 10.5 percent return on the market capitalization-weighted S&P 500.