Stocks have historically earned about $6\mathrm{.}6\%$ per year in real terms $($i$.$e$.,$ adjusting for inflation$),$ while government bonds have earned about $3\mathrm{.}6\%$ per year. A $$1,000$ investment in stocks for a $100-$year horizon $($lucky you!$)$ would have grown to $$596,000,$ while a corresponding $$1,000$ in government bonds would have grown to $$34,000.$

Why does a $3\%$ difference in returns translate into such a large difference in end$-$of$-$period wealth?$($Choose the most important reason. Some answers may be partially correct but are not the main reason$).$

Group of answer choices

Inflation hurts bonds more than stocks.

Stocks are much more risky than bonds

For much of the past $100$ years, inflation has been far above $2\%$ per year.

The use of real instead of nominal returns

The compounding effect

Stocks always outperform bonds over horizons longer than $10$ years.