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What Is the Average Stock Market Return?

The stock market has historically returned an average of 10% annually, before inflation. However, stock market returns vary greatly from year-to-year, and rarely fall into that average.
Oct. 22, 2019
Investing
What Is the Average Stock Market Return?
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Over nearly the last century, the stock market’s average annual return is about 10%. But year-to-year, returns are rarely average. Here’s what new investors starting today should know about stock market returns.

The average stock market return is 10%

The S&P 500 index comprises about 500 of America’s largest publicly traded companies and is considered the benchmark measure for annual returns. When investors say “the market,” they mean the S&P 500.

Keep in mind: The market’s long-term average of 10% is only the “headline” rate: That rate is reduced by inflation. Currently, investors can expect to lose purchasing power of 2% to 3% every year due to inflation.

» Intrigued? Learn how to invest in stocks

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 — like an online savings account — and you’d expect to earn a lower return in exchange for that safety. Here’s our list of the best high-yield online savings accounts.

The market’s returns aren’t always average

While 10% might be the average, the returns in any given year are far from average. In fact, between 1926 and 2014, returns were in that “average” band of 8% to 12% only six 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.

» Start small: How to invest $500

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 recommend using an average annual return of 6% and understanding that you’ll experience down years as well as up years.

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.

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.

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. Here’s a step-by-step guide to opening a brokerage account, as well as our top picks for online brokers:

Trade Fee

$2.95

$2.95

Account Minimum

$0

$0

Promotion

300

300

$0 online stock and ETF trades, no minimum deposit required

Trade Fee

$0.00

$0.00

Account Minimum

$0

$0

Promotion

$100 to $2,500

$100 to $2,500

cash credit with a qualifying deposit

Trade Fee

$0.00

$0.00

Account Minimum

$0

$0

Promotion

Up to $600

Up to $600

cash credit with qualifying deposit

For more options, see our list of the best online brokers.

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