> 5. Buy in 1973 and sell in 1992, realizing 2% annualized over 19 years. Again, you'd have to suffer losing over half your capital before you eventually came out on top.

You seem to be ignoring dividends.

The S&P 500 gave a total return of 11% nominal and 4.5% real from the high point in 1973 to the low point in 1992. (Note: I only have monthly figures for the 1970s.)

  SPXTR, Jan 31, 1973: 60.27
  CPI-U, Jan 1973: 42.6

  SPXTR, April 8, 1992: 457.16
  CPI-U, April 1992: 139.5

  Total nominal return: 457.16 / 60.27 = 7.59
  Annual nominal return: 7.59 ^ (1/19) = 1.11

  Total real return: 457.16 / 139.5 / 60.27 * 42.6 = 2.32
  Annual real return = 2.32 ^ (1/19) = 1.045

Historically, dividends have accounted for over half the return, and thus you cannot simply ignore them. This is why I use the S&P 500 Total Return Index (SPXTR) to calculate returns, not the S&P 500 Index (SPX).

Note: Taxes not included in the calculation. Alternative investments, such as bonds and money market funds, would've been taxed as well. You could've gotten tax-deferred compounding starting in 1975, when the Traditional IRA was created.

Data sources:

1. GlobalFinancialData.com for SPXTR, extended backwards. Not freely available.

2. Bureau of Labor Statistics for CPI-U. Their servers remain up during the government shutdown -- but no data is being updated. ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt