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One of the easiest and most effective ways to measure the success of your stock market investments is to take a look at the stock market’s average return. Keeping an eye on the average stock market return shows you how the larger market is performing over a specific period of time, which is essential when building and maintaining a portfolio.
The average stock market return over the past five years is 13.95%, which is higher than the 100-year average of 10%. The S&P 500, an index that tracks 500 large-cap companies, is the industry standard for determining stock market averages.
Stock market returns vary from year to year, but they have proven to be surprisingly steady over time.
Find out how stock market returns have reacted to economic upheavals over the past century, and discover what experts predict will happen to average returns over the coming ten years, in our report below.
Average Stock Market Returns From S&P 500
The overall average market return for U.S. stocks is 10%, based on 100 years of history from the S&P 500 index.
How does the 100-year average affect you as an investor?
History can’t predict what will happen in the future, but it does show that the market favors long-term investors.
People who invest their money into the stock market and allow those assets to sit throughout their lifetimes typically end up generating better-than-average returns over time, despite the ups and downs of the economy.
Stock Market Returns By Year For The Past Five Years
As you can see by viewing the yearly average returns below, average stock market returns can vary widely from year to year.
Historical returns by year:
- 2017: 19.42%
- 2018: -6.24%
- 2019: 28.88%
- 2020: 16.26%
- 2021: 26.89%
- 2022: -6.71% [changes daily]
While the stock market can be volatile in the short-term, long-term investors understand that it traditionally always bounces back over time.
Stock Market Returns By Decade
To further understand what happens to your money when you invest in stocks, we take a look at average market returns over the past 10, 20, and 30 years.
Stock Market Returns By Decade Up Until 2020:
- 10 years: 13.95% (2011 to 2020)
- 20 years: 7.45% (2001 to 2020)
- 30 years: 10.72% (1991 to 2020)
Even during the worst of times, the stock market typically recovers within a year, although it can take much longer after serious economic events.
For example, the most serious stock market drop of most of our lifetimes occurred in 2000 when the dot-com bubble burst. It took about eight years for the market to recover, then immediately afterward came the crash of 2008, which took six years to recover from.
Long-term investors who were willing and able to hang onto their investments despite the extreme drops in 2000 and 2008 eventually recovered their losses.
- Did you know? 54% of investors prefer stock investing over real estate, and 60% prefer stocks to cryptocurrency.
While historical performance offers no promise for the future, it can be a pretty good indication of what to expect when you invest in stocks.
With a solid 10% average return over the course of an entire century, indications are that the stock market is one of the best places to put your money for long-term growth.
Predicted Average Stock Market Returns
In 2022, experts predict that U.S. returns will be well below 16% over the next 7 – 10 years, and that non-U.S. stocks will do better than U.S. stocks.
No one can genuinely predict what will happen with stock market returns in the future because life itself is unpredictable, and life affects the stock market.
In 1990, no one could have predicted the dot.com crash, the great recession of 2008, or that a global pandemic would ever be anything other than a science fiction movie.
But financial experts do combine their experience and knowledge to develop expectations for stock market behavior in the coming years, and their advice may be the best we can find to help guide our future strategy.
A 2022 report by Morningstar reveals that every firm in their compilation of experts, which includes BlackRock, Vanguard, and J.P. Morgan, expects U.S. returns to be well below 16% over the next 7 – 10 years, and that they expect lower returns from U.S. stocks than from non-U.S. stocks during the same time period.
Advice from the same experts suggests that if you’re retired, you should be realistic about your return expectations when determining a sustainable withdrawal plan and that newly retired people should be conservative about their withdrawals.
Keep in mind that expectations change, and are always a work-in-progress. Think of stock market predictions like Instagram and Facebook Stories: they’re ephemeral and will eventually disappear, only to be replaced with a new version next week, next month, or next year.
Stock Market Returns – Long-Term Investing Goals
Over the past 100 years, the stock market has survived and continually balanced itself out, even after such shocking economic upheavals such as the 1918 – 1920 Spanish Flu pandemic and the 2020 – (?) Coronavirus pandemic, the 1929 stock market crash and subsequent depression, and a total of 12 recessions since 1945.
Despite its sometimes volatile behavior, stock market returns typically generate profitable returns for long-term investors.
Long-term investing means developing a low-to-moderate risk, passive investment strategy that gives better-than-average returns throughout your lifetime — usually over many decades.
Long-Term Investing For Consistent Average Returns
Achieving average stock market returns, or better, requires a long-term investing mindset.
Rather than frequently making trades or conducting buy/sell transactions, long-term investors focus on building a stable stock portfolio using a consistent buy-and-hold strategy. Many deposit 10% – 30% of their monthly income into investments, faithfully, throughout their lifetime.
Holding onto your stock investments over decades allows them to benefit from the snowball effect referred to as “compounding.”
“Compounding” refers to the growth that happens when, over time, you continually reinvest the earnings from your investments instead of cashing them out.
When you hold on to shares over time, they earn profits through appreciation and dividends. By continually reinvesting those earnings, your profits begin to generate more earnings on their own.
Then, the profits from those profits earn even more money. This phenomenon is referred to as compounding and can grow your investment exponentially over time, producing far more than the 10% stock market return average.
For example, if you begin investing in the stock market at age 20, then reinvest the earnings and dividends those investments generate, you can turn a $10 investment into millions of dollars by the time you’re 65 (assuming you get average 10% returns).
Or, if you make good money and contribute a significant portion of your salary toward your stock investments, you may be able to retire early and enjoy life while you’re still young!
According to a January 2022 poll by Minority Mindset, 77% of inventors use an investing app because they feel it makes investing easier.
Day Trading Has Higher Risks And Lower Returns
Day trading is a way for people to try and make money by purchasing stocks at low prices and selling them for higher prices in a very short period of time, usually 24 hours.
Day trading is a high-risk stock market strategy, and because market averages fluctuate so heavily each day, it can be extremely difficult to maintain consistently high average returns.
- Only 1.6% of day traders make a profit in an average year. People who do profit from day trading are extremely active, conducting a full 12% of all day trading activity.
Day trading may allow some people to make a living or even “get rich,” but the reality is that nearly 99% of day traders lose more than they earn.
Investing with a long-term mindset, on the other hand, allows nearly anyone to gain consistent average returns throughout their lifetime. It’s a passive strategy, so it doesn’t require your presence, and you don’t have to deal with any high-risk investing decisions.
One of the best ways to consistently enjoy average returns in the stock market is to conduct due diligence and stay current on what’s happening in stock investing. Market Insiders provides coaching sessions to help you better understand investing and make decisions that support your investing goals.
Market Insiders doesn’t give you advice, but the financial education you need in order to make the best decisions with your money.
The experienced coaches will help you stay current on everything that’s going on in the business and financial world with weekly sessions, in-depth calls, and briefings that detail everything that happened during the trading day.
Average Stock Market Returns Can Mean Big Payoffs For Long-Term Investors
Throughout recessions, pandemics, and other unpredictable economic crises, the stock market has managed to return an average profit of 10% for long-term investors for more than 100 years.
When investors buy and sell in response to market fluctuations, or when they become day traders instead of long-term investors, they are far less likely to profit from the stock market.
To become a long-term investor in the stock market, make regular contributions to your portfolio, hold your assets over decades, and consistently reinvest their earnings.
This way, anyone can turn a $10 investment into a million dollar portfolio that constantly beats the average stock market return.