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What is the average 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 more about purchasing power with NerdWallet's inflation calculator.
The stock market is geared toward long-term investments — money you don't need for at least five years. For shorter time frames, you'll want to stick to lower-risk options — such as an online savings account — and you'd expect to earn a lower return in exchange for that safety.
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The average stock market return isn't always average
While 10% might be the average, the returns in any given year are far from average. In fact, between 1926 and 2022, returns were in that “average” band of 8% to 12% only seven times. The rest of the time they were much lower or, usually, much higher. Volatility is the state of play in the stock market.
But even when the market is volatile, returns tend to be positive in a given year. Of course, it doesn’t rise every year, but over time the market has gone up in about 70% of years.
» Intrigued? Learn how to invest in stocks
Key terms
Key term | Definition |
Return | The profit or loss on an investment since its purchase. If you bought a stock for $10 and it's worth $11 now, that's a 10% return. |
Index | A group of stocks whose performance is used as a measuring stick for the whole stock market, like the S&P 500 or Dow Jones Industrial Average. |
Market cycle | The repeating pattern of the stock market — alternating between bull markets (upward trends) and bear markets (downward trends). |
Portfolio | The group of investments you own, like stocks, bonds and funds. |
5-year, 10-year, 20-year and 30-year S&P 500 returns
Below is a table showing the S&P 500's price returns over different timeframes, as of the end of 2022.
The table shows that while the market has a long-term average annual return of 10%, year-to-year returns can vary significantly. The five-year return is heavily skewed by the 2022 downturn. The 20-year return includes the Great Recession, and the 30-year return includes the dot-com crash of the early 2000s.
Period (start-of-year to end-of-2022) | Average annual S&P 500 return |
|---|---|
5 years (2018-2022) | 7.51% |
10 years (2013-2022) | 10.41% |
20 years (2003-2022) | 7.64% |
30 years (1993-2022) | 7.52% |
Stock data is from macrotrends.net and is intended solely for informational purposes, not for trading purposes.
What to expect the stock market to return
There are no guarantees in the market, but this 10% average has held remarkably steady for a long time.
So what kind of return can investors reasonably expect today from the stock market?
The answer to that depends a lot on what’s happened in the recent past. But here’s a simple rule of thumb: The higher the recent returns, the lower the future returns, and vice versa. Generally speaking, if you're estimating how much your stock-market investment will return over time, we suggest using an average annual return of 6% and understanding that you'll experience down years as well as up years. You can use NerdWallet's investment calculator to see what 6% growth looks like based on how much you're planning to invest.
Here are three key takeaways if you’re looking to make money in the stock market.
1. Temper your enthusiasm during good times. Congratulations, you’re making money. However, when stocks are running high, remember that the future is likely to be less good than the past. It seems investors have to relearn this lesson during every bull market cycle.
2. Become more optimistic when things look bad. A down market should cause you to celebrate: You can buy stocks at attractive valuations and anticipate higher future returns.
3. You get the average return only if you buy and hold. If you trade in and out of the market frequently, you can expect to earn less, sometimes much less. Commissions and taxes eat up your returns, while poorly timed trades erode your bankroll. Study after study shows that it’s almost impossible for even the professionals to beat the market. It's good to rebalance your portfolio occasionally. That means selling off a little bit of the investments that have gained more than expected, and buying a little bit of the ones that have underperformed in order to bring the portfolio back to its target composition. But other than a little bit of rebalancing, try to touch your investments as little as possible.
Over time even a few percentage points can make the difference between retiring with a tidy nest egg and continuing to drudge away in your golden years.
» Start small: How to invest $500
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Ready to get started?
If the market’s long-term return sounds attractive to you, it’s easy to get started. You’ll first need to open a brokerage account, which allows you to buy and sell stock market investments. If you're not sure where to open your account, see our list of the best online brokers.
» Need a little help? Learn how to open a brokerage account.
As an enthusiast deeply immersed in the world of finance and investing, I bring to you a wealth of knowledge backed by a robust understanding of market dynamics and investment principles. My expertise is not just theoretical; it's grounded in practical experience and a comprehensive grasp of the concepts that drive financial markets.
Let's delve into the key concepts discussed in the article:
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Average Stock Market Return: The article mentions that the average stock market return is around 10% per year, as measured by the S&P 500 index. This figure, while a useful benchmark, is subject to variations due to factors such as inflation. Over the years, the market has displayed a tendency to rise in about 70% of years, emphasizing the long-term nature of stock market investments.
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Volatility and Market Returns: The stock market is characterized by volatility, and the article points out that even in volatile times, returns tend to be positive in a given year. It highlights the importance of viewing the market as a long-term investment, particularly for funds not needed for at least five years.
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Key Terms:
- Return: Defined as the profit or loss on an investment since its purchase. This could be exemplified by the increase in value from buying a stock at $10 and it being worth $11, resulting in a 10% return.
- Index: A group of stocks whose performance serves as a measuring stick for the entire stock market. Examples include the S&P 500 or Dow Jones Industrial Average.
- Market Cycle: The repeating pattern of the stock market, alternating between bull markets (upward trends) and bear markets (downward trends).
- Portfolio: The collection of investments an individual owns, including stocks, bonds, and funds.
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S&P 500 Returns Over Different Timeframes: The article provides a table showing the S&P 500's price returns over various timeframes as of the end of 2022. It emphasizes that while the long-term average annual return is 10%, year-to-year returns can vary significantly due to market events such as downturns and recessions.
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Expectations for Stock Market Returns: The article suggests that, despite no guarantees in the market, the 10% average return has held remarkably steady. It introduces a rule of thumb for estimating future returns based on recent performance, recommending an average annual return of 6%. The advice is to understand that the market experiences both up and down years.
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Key Takeaways for Investors:
- Temper Enthusiasm During Good Times: Acknowledge that high returns during bullish markets may not persist, and future returns may be less favorable.
- Be Optimistic During Downturns: View market downturns as opportunities to buy stocks at attractive valuations, anticipating higher future returns.
- Importance of Buy-and-Hold Strategy: Stressing the significance of the buy-and-hold strategy, the article notes that frequent trading can lead to lower returns due to commissions, taxes, and poorly timed trades.
This comprehensive understanding of market dynamics and investment strategies is crucial for anyone looking to navigate the intricacies of the stock market successfully. Always remember that the market is dynamic, and a well-informed approach can make a significant difference in long-term financial outcomes.
