I expect the graph is pulled directly from the guy's book (Unexpected Returns). Without reading the book, I can't tell what assumptions he used, but I would be careful with the data, it does state that it includes:
- Dividends
- Inflation
- Taxes
- Fees
However, it doesn't disclose what assumptions were used for those, and they can all vary a lot on a personal level. Mustachians in particular might likely have higher than average dividends (for those who target dividend stocks, which it appears many Mustachians do), lower than average taxes, and lower than average fees.
With some quick Googling I find that the average equity mutual fund fees are between 1.3% and 1.5% per year. I pay between 0.08% and 0.24% for the vast majority of mine, with the overall average around 0.11%, more than a full percentage point lower than the general average, *per year*, so that savings would be compounded over time.
Marginal tax rates can vary widely, some years more than others, but currently income marginal rates in the US range from 0% to 35%, and long term dividend and capital gains rates can be either 0% or 15%--it will be 0% unless your taxable income is over about $35K for a single filer or about $70K for a married couple (meaning that you're in the 25% marginal income tax bracket). Real investing returns would be based on some combination of the two, since things like IRAs and 401ks would be based primarily on income tax rates, but long term taxable account investing would be based more on capital gains / dividends rates.
If you are a hardcore Mustachian you would likely fall below the "average" tax level, particularly when you are retired and therefore selling their investments or living off the dividends. In that case according to current law there would be no taxes, adding back in the 15% (or more) the author likely deducted from the returns in his chart for recent years. If you use Roth IRAs or 401ks, you would "lock in" your tax rate up front on what you invest, and again have no taxes upon withdrawal, with no taxes at all on the investment returns.
Inflation I would say is a legitimate deduction when talking about real returns vs. nominal returns, so I'll leave that one alone for the most part. I would say though that your own personal inflation rate depends on what you spend your money on--and with Mustachian techniques I believe you would specifically target your spending on categories and items that have not gone up in cost as much as many things have.
This chart is also based on the S&P500--meaning no international, no small cap, no real estate, no bonds, no commodities, no cash. According to one site, from 1926-2011, the CRSP 6-10 small cap index had an avg. annual return of 11.3% vs. 9.5% for the S&P500. What that means though is that a $10,000 investment in 1926 in the S&P500 would have returned a little over $23 million by 2011, but the small cap index would have returned a little over $100 million. That's not to say you should dump all your money in small caps, but I think having some portion of your funds in other asset classes can boost returns vs. concentrating 100% on one asset class, for multiple reasons.
Overall the point being, take that chart with a huge grain of salt. What's true on average for the masses is not necessarily true for you.