The S&P 500 (SNPINDEX:^GSPC) is effectively flat over the last 12 years. That reality has seriously hurt investor confidence and left retirements accounts around the world dangerously underfunded.

And here's the scary part: It could be like this for years to come.

Last week, I sat down with Robert Arnott, CEO of Research Affiliates and one of the most influential investment minds of the last decade. In his view, three forces could contribute to dismal returns: demographics, debt, and deficits. He calls it the "3D hurricane." 

Here's what else he had to say about investment returns (transcript follows):

Morgan Housel: We've just been through a decade of essentially zero returns in the stock market. We have bond yields today that are effectively guaranteeing low, if not zero or negative, future returns. Do you think we are in the "new normal" world of low returns going forward?

Robert Arnott: Absolutely. We term it a little differently. We call it the "3D Hurricane" -- the interconnected influence of deficit, debt and demography -- and that's part of the new normal. The other part of the new normal is low yields. If you're in a low-yield environment, you're in a low-return environment. If you're in a low-growth environment, you're in a low-return environment. And low returns aren't in and of themselves dangerous. What's dangerous is the expectations gap. If people are expecting 10% from stocks and they get 4%, horrible, horrible things happen to their plans. If they're expecting 4% and they get 10%, they'll have planned for the worst, and it didn't happen. And 4% ... I think is probably a not-unreasonable expectation for stock returns over the next 10 to 20 years. Four percent in and of itself is not a horrible rate of return. It's 4% better than you get through the bank.

Morgan Housel: So about 4% real from let's say the S&P 500.

Robert Arnott: I would say 4% nominal [before inflation].

Morgan Housel: Four percent nominal, so maybe 1% to 2% real [after inflation].

Robert Arnott: Correct.

Morgan Housel: Is that over the next decade, the next 30 years?

Robert Arnott: The next 10 to 20 years, yes. Now that's from current levels. If levels correct to lower levels, then I would ratchet my expectations up from there.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.