The extra return you're owed for risk
The equity risk premium is the return stocks are expected to deliver above a "risk-free" government bond, compensating you for the extra volatility. Historically it's run somewhere between 3-6% annually in the US, though estimates vary widely by method.
Why the number is contested
Backward-looking estimates using realized returns tend to be higher than forward-looking estimates built from current valuations — and current valuations matter more for what you should expect going forward, not what happened last century.
What it means for allocation
A lower expected premium doesn't mean avoid stocks — it means temper return expectations and lean harder on the things you control: savings rate, fees, and time in market.
