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Seven percent, or maybe 8 percent, 9 percent or 10 percent. Yes, it was another great year on the Tel Aviv Stock Exchange. Whether you're invested in a mutual fund run by a bank or broker, whether you chose management insurance or a training fund, chances are good that your money expanded by anywhere from 7-10 percent in 2004.

Celebrate that thought, because the chance of many more years like that is remote.

The handsome yields on long-term savings in the last two years were mainly the mirror image of the terrible losses in the preceding two years, 2001 and 2002. Stocks and bonds collapsed as the intifada resurfaced, the recession raged and the Nasdaq wilted. But the resulting low base point was the very platform that enabled the surge in 2003 and 2004.

A long-term look at the yields by provident funds and insurance companies shows that the average annual yield is less than half that 2004 result. In the last 10 years, good managers generated 5 percent and the bad ones 3 percent, in real terms.

But why look at the decade that was? Let's look ahead! On January 1, 2005, Israel's capital market opened to the wide world thanks to tax parity: Israeli investments are no longer protected by lower tax. Capital gains on foreign and Israeli investments owe 15 percent flat tax. Perhaps we will see "American-style" yields of 9-11 percent a year?

A second look at `Western yields'

True, the Western markets generated yields of 8-12 percent annually over the last 20 years. The figures are astonishing, given that 10 percent a year, for instance, generates total returns of 570 percent.

But in contradiction to the conventional wisdom, the engine driving the gains was not corporate profit growth, it was the sharp slide in inflation and interest.

The 1980s began with double-digit inflation and sky-high interest rates in America and elsewhere, too. The 2000s ended with practically zero inflation and interest at a 40-year low. Interest rate drops that steep must lift bond prices and dramatically improve the values of companies and their shares.

Meanwhile, behind the scenes

This is exactly where the horror scenario of the global marketplace lurks. Inflation has finished dropping, and so have interest rates. To continue to race ahead, stock markets will need another engine to drive growth.

What about the most basic engine of all? Economic expansion, rising profits?

That could drive us ahead, mainly in the case of stock markets where share prices are not fully priced. But the pace of that growth engine is more limited than people commonly grasp.

Brokers, bankers and analysts have managed to drum home the message that shares generate higher returns than other investment options in the long run. They choose to ignore the fact that from 1964 to 1974, American stocks lost money for investors, in real terms. They also choose to ignore the statistics showing that in most stock markets around the world, there was at least one period of 20 years when people were better off keeping their money in the banks.

If the average yield on American markets drops from 10 percent to 5 percent or even 7 percent, over years, it would be a horror scenario for the pension plans of tens of millions of Americans.

The bad news is that the impressive gains on world markets in the last 20 years may be the sign that the next 20 years will be a lot less gay.

The good news is that your average Israeli, unlike your average American, is not basing his pension and future standard of living on a portfolio expected to grow by double digits each year. Give your Israeli 4 or 5 percent a year, that will do fine.