So, you’re curious about the average stock market return, huh? It’s a pretty common question, especially if you’re trying to figure out what kind of growth you can expect over time. Let’s dive into what this number actually means, how it’s calculated, and why it matters for your investments.
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ToggleWhat Does “Average Stock Market Return” Mean?
When people talk about the average stock market return, they’re usually referring to the average annual return that the stock market has generated over a long period of time. This is often used as a benchmark to gauge how well the market, or a particular stock, has performed.
For most people, the stock market means the S&P 500, which is an index that tracks 500 of the biggest companies in the U.S. It’s often seen as a good representation of the overall market. So, when we talk about the average return, we’re often talking about how much this index has gained or lost over time.
What’s the Actual Number?
Alright, let’s get to the numbers. Over the long term, the average stock market return tends to hover around 10% per year. This is based on historical data, going back many decades. But here’s the thing—that’s just an average. In any given year, the market might go up by 20%, or it might drop by 10%. It’s all over the place in the short term, but over the long haul, it averages out to around 10%.
Now, that 10% figure is before inflation. If you adjust for inflation, the average return is more like 7% per year. Still, not too shabby for a long-term investment.
Breaking It Down by Time Periods
But what if you’re not looking at the entire history of the stock market? What if you just want to know how it’s performed recently? Let’s break it down.But before we do that, it’s critical to note that these are “average annualized returns” meaning that they are looking at the average “yearly” return within the allotted time period.
For example, a 10% annual return in the last 30 years would mean 10% returns every year for 30 years—that’s a massive number!
- Last 30 Years: The average stock market return over the last 30 years is still around that 10% mark. This period includes some major ups and downs, like the dot-com bubble in the early 2000s and the financial crisis of 2008.
- Last 20 Years: If you look at the last 20 years, the average is slightly lower, closer to 8-9%. This period was heavily influenced by the 2008 crisis, which caused a big dip in returns.
- Last 10 Years: The last decade has been pretty strong, with an average return of around 13-14%. This was a period of significant recovery and growth, especially following the 2008 crisis.
- Last 5 Years: More recently, the average return has been a bit higher than the long-term average, closer to 15-16%. This includes the recovery period after the COVID-19 market crash in 2020.
- Last 3 Years: The last few years have been a rollercoaster, with 2020 being particularly wild. Despite that, the average return is still in the ballpark of 15% annually, thanks in large part to the massive gains following the initial COVID-19 market drop.
Why Does It Matter?
Understanding the average stock market return is crucial if you’re planning on investing for the long term. It gives you a rough idea of what to expect in terms of growth, which can help you set realistic financial goals.
For example, if you’re saving for retirement, knowing that the market has historically returned around 7-10% per year (after adjusting for inflation) can help you figure out how much you need to save and invest each year to reach your target.
But remember, these are just averages. The market is unpredictable in the short term. That’s why it’s important to stay the course, even when things get rocky, and focus on the long-term picture.
Wrapping It Up
So, there you have it. The average stock market return is typically around 10% per year, though it can vary depending on the time frame you’re looking at. Whether you’re looking at the last 30 years, 10 years, or just the last 3, the stock market has proven to be a solid long-term investment, despite its ups and downs.
If you’re serious about getting into the market and want some expert help along the way, consider checking out Trading Sweet Spot. We offer professional trading signals and strategies that can help you make smarter investment decisions. Plus, you can try it out with a 14-day risk-free trial — so there’s nothing to lose, and potentially a lot to gain.
Last Updated on August 30, 2024
Written By
Critically-received strategist and author Syed Bashir Hydari has made his debut on Forbes Stages, Secret Knock, ChainXChange, Penthouse Masterminds, Radio Shows, Speaksies, and Rising Podcasts - for his distinct simplifications, modeling in uncertainty, and precise overhauls in the brainchild of several tycoons. By token, he has shared floor with likes of Dr. Greg S. Reid, Gary Vaynerchuck, Dr. Katsushi Arisaka, & more. Though contracted with bestsellers like Waterside, he vendors his books through private mentorships.
Graduating Summa Cum Laude (highest honors) from UCLA, he is now a keynote speaker for Forbes / Inc mega forums and key member in the investment think tank of Dr. Greg S. Reid - a NYT bestselling author and Forbes top 10 industry speakers worldwide.
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