The past decade has been great for stocks. From 2012 through 2021, the average stock market return was 14.8% annually for the (SNPINDEX:^GSPC). The returns can -- and do -- vary wildly from one year to the next, and an "average" year almost never actually generates the average return.
Over that decade, only one year, 2014, was close to the 14.8% average annualized return. The catch? Nobody knows which years will be above or below average. This is where the one-year average is helpful only in setting the stage for stocks as good long-terminvestments.
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Returns
Returns are the difference between the initial price of an asset and the dollar value that has been generated after ownership has ended.
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Average stock market returns
Average stock market returns
In general, when people say "the stock market," they mean the S&P 500 index. The S&P 500 is a collection -- referred to as a stock market index -- of just over 500 of the largest publicly traded U.S. companies. (The list is updated every quarter with major changes annually.) While there are thousands more stocks trading on U.S. stock exchanges, the S&P 500 comprises about 80% of the entire stock market value on its own, making it a useful proxy for the performance of the stock market as a whole.
The market's results from one year to the next can vary significantly from the average. Let's use the 2012-2021 period as an example:
- Down 4.4%: 1 year
- Up 2% or less: 1 year
- Up more than 20%: 4 years
- Up between 12% and 19%: 4 years
To put it another way, six of those 10 years resulted in outcomes that were very different from the 14.8% annualized average return over that decade. Of those six very different years, two generated significantly lower returns (with one year, 2018, resulting in losses), while four years delivered substantially higherreturns. Two of those years -- 2013 and 2019 -- generated returns of more than 30%, helping to make up for the years that saw below-average returns.
10-year, 30-year, and 50-year average stock market returns
10-year, 30-year, and 50-year average stock market returns
Let's take a look at the stock market's average annualized returns over the past 10, 30, and 50 years, using the S&P 500 as our proxy for the market.
Data source: MoneyChimp.| Period | Annualized Return (Nominal) | Annualized Real Return (Adjusted for Inflation) | $1 Becomes... (Nominal) | $1 Becomes... (Adjusted for Inflation) |
|---|
| 10 years (2012-2021) | 14.8% | 12.4% | $3.79 | $3.06 |
| 30 years (1992-2021) | 9.9% | 7.3% | $11.43 | $5.65 |
| 50 years (1972-2021) | 9.4% | 5.4% | $46.69 | $6.88 |
It's worth highlighting the variance in annual returns from one year to the next versus the average. Since 1972, here is a breakdown of the yearly results:
- Returns of 20% or more: 19 years
- Returns between 10% and 20%: 13 years
- Returns between 0% and 10%: nine years
- Losses between 0% and 10%: four years
- Losses between 10% and 20%: two years
- Losses of more than 20%: three years
Stock market returns vs. inflation
Stock market returns vs. inflation
In addition to showing the average returns, the table above also shows useful information on stock returns adjusted for inflation. For example, $1 invested in 1972 would be worth $46.69 today.
But, in spending power, $46 isn't worth what it would have been in 1972. Adjusting for inflation, that $46 will buy the same amount of goods or services you would have been able to buy with $6.88 in 1972.
What Is a Good Return on Investment?You invest to get a return. So what makes a good ROI?
How to Calculate Holding Period ReturnTotal return gained or lost in a time period helps investors measure return.
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Buy-and-hold investing
Buy-and-hold investing
If there's any one lesson we can take from the breakdown of annual results versus the average, it's that investors are far more likely to earn the best returns by investing for the long term. There's simply no reliably accurate way to predict which years will be the good years and which years will underperform or even lead to losses.
But we do know that, historically, the stock market has gone up more years than it has gone down. The S&P 500 gained value in 40 of the past 50 years, generating an average annualized return of 9.4%. Despite that, only a handful of years actually came within a few percentage points of the actual average. Far more years significantly either underperformed or outperformed the average than were close to the average.
What's a person to do? Buy high-quality stocks, ideally regularly across every market condition, and hold those investments for many years. The evidence is overwhelming that investors who try to trade their way to higher returns with short-term moves or buy and sell based on projections of short-term peaks and bottoms generally earn below-average returns. Moreover, those strategies require substantially more time and effort. They can also result in higher fees and taxes that further reduce gains.
If you're looking to build wealth, investing in stocks is an excellent place to start. But to get the best returns in stock investing, use the method that's tried and true: Buy great stocks and hold them for as long as possible.
Mike Price has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
FAQs
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Motley Fool Stock Advisor has a strong track record of stock recommendations with investment returns that have outperformed the broader market over the long term. Investors are still advised to diversify their portfolios with more than just Motley Fool Stock Advisor's picks.
What is the average rate of return for the stock market? ›
Historically, the average stock market return is about 10% per year as measured by the S&P 500 stock market index. While this number can give you a general sense of how the stock market may perform over time, additional context is helpful for understanding what it means for your investments.
What is the average market return for 20 years? ›
Stock Market Average Yearly Return for the Last 20 Years
The historical average yearly return of the S&P 500 is 10.16% over the last 20 years, as of the end of May 2024. This assumes dividends are reinvested. Adjusted for inflation, the 20-year average stock market return (including dividends) is 7.41%.
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Since 2003, this portfolio has returned 1,240.6%, outperforming the market by 791.4% using its optimal tax efficient rebalancing period and 10 stock portfolio size.
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Top growth stocks in 2024
| Company | 3-Year Sales Growth CAGR | Industry |
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| Netflix (NASDAQ:NFLX) | 8% | Streaming entertainment |
| Amazon (NASDAQ:AMZN) | 10% | E-commerce and cloud computing |
| Meta Platforms (NASDAQ:META) | 11% | Digital advertising |
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What is the safest investment with the highest return? ›
Here are the best low-risk investments in July 2024:
- High-yield savings accounts.
- Money market funds.
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- Treasury bills, notes, bonds and TIPS.
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Imagine you wish to amass $3000 monthly from your investments, amounting to $36,000 annually. If you park your funds in a savings account offering a 2% annual interest rate, you'd need to inject roughly $1.8 million into the account.
What is a reasonable stock market return? ›
The average stock market return is about 10% per year, as measured by the S&P 500 index, but that 10% average rate is reduced by inflation. Investors can expect to lose purchasing power of 2% to 3% every year due to inflation. » Learn about purchasing power with the inflation calculator.
What is a good ROI over 20 years? ›
A good return on investment is generally considered to be around 7% per year, based on the average historic return of the S&P 500 index, adjusted for inflation. The average return of the U.S. stock market is around 10% per year, adjusted for inflation, dating back to the late 1920s.
What is a good rate of return on 401k investments? ›
Many retirement planners suggest the typical 401(k) portfolio generates an average annual return of 5% to 8% based on market conditions.
What is the 10 year expected market return? ›
Highlights: Nominal median U.S. equity market return of 4.2% to 6.2% during the next decade; 4.8%–5.8% median expected return for U.S. fixed income (as of Sept. 30, 2023). Vanguard's latest U.S. equity market return forecast is a touch below where it was a year ago.
What is the average return of the SP 500? ›
Since 1957, the S&P 500's average annual rate of return has been approximately 10.5% (through March 2023) and around 6.6% after adjusting for inflation.
What is a good average return on investment? ›
A good return on investment is generally considered to be around 7% per year, based on the average historic return of the S&P 500 index, adjusted for inflation. The average return of the U.S. stock market is around 10% per year, adjusted for inflation, dating back to the late 1920s.
What is moving average Motley Fool? ›
Like other technical investing techniques, the moving average convergence or divergence (MACD) helps traders decide when to buy or sell stock based on its recent price action. This kind of investing differs from fundamental investing, which is focused on the performance of the business.
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