What Are the Average Stock Market Returns?

Understanding the average stock market returns can help you make more savvy investments long term. You can look at the average returns for several different periods of time and analyze various benchmarks, such as the S&P 500 index. Explore the factors that influence stock market returns, and take a look at historical average stock market returns that can show you certain trends to look for while investing.

What Is a Stock Market Return?

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A return is the money made or lost on an investment over a set period of time. Returns are expressed as either dollar amounts or percentages taken from the profit-to-investment ratio. A return can also be expressed as a net result that only shows the price change over a period of time. A positive return shows that an investment yielded a profit, while a negative return indicates an investment lost money.

What Is the S&P 500 Index?

The S&P index is a capitalization-weighted index that measures the performance of the 500 largest publicly-traded companies in the United States. This is the primary index used to estimate the large-cap U.S. equities and is especially important when talking about stock market return rates. Other stock market benchmarks used to gauge U.S. equities include the Russell 2000, NASDAQ Composite, and the Dow 30.

The S&P 500 index is widely quoted due to its representation of the largest publicly traded companies in the nation. This index is based on the large-cap sector of the United States market and is also a float-weighted index, which means the organization capitalizations derived from the index are adjusted based on the number of shares available to trade publicly.

Popular stocks included in the S&P 500 index are Amazon, Johnson & Johnson, and Facebook. The companies with larger market capitalization have a bigger influence on the performance of the index compared to organizations with smaller market capitalization.

Companies must meet the following criteria to be listed in the S&P 500 index:

  • Positive earnings reported over the last five consecutive quarters.
  • Registered as a company in the United States.
  • A market capitalization of at least $5.3 billion.
  • At least 50% of shares are able to be freely bought and sold by the public with no restrictions.
  • Stock that’s traded in an active market at a fair price.

What Factors Influence Stock Market Returns?

There are several factors that influence stock market returns, including:

  • Interest rates: Interest rates can play a significant role in how much return you make in the stock market. The U.S. Federal Reserve sets interest rates in the short term. These interest rates directly affect mortgages, loans, and credit cards. When rates are set lower, economic growth is spurred. When rates are made higher, inflation is more controlled. Higher interest rates can ultimately result in lower profit margins and revenue, which leads to reduced returns on investment.
  • World economics: The worldwide economy also impacts stock market returns due to the fact that the American stock market is highly contingent on other countries’ economies. For example, when foreign countries experience a lower economic period, U.S. companies cannot sell as many goods as they can when foreign economies are better. This can result in decreased revenue for U.S. companies and a lower stock market return.
  • Inflation and deflation: Inflation and deflation have a significant effect on the stock market, and as a result, on the returns you make when investing. During periods of inflation, the stock market may be adversely affected due to investors holding back on investing in companies. When inflation is low, also known as deflation, the cost of goods drops, and more investors purchase stock.

Historical Average Stock Market Return

The S&P 500 index is typically the index used to gauge average returns as it’s considered to be the most accurate measure of the stock market by investors. The S&P 500 index was created in 1923. However, it didn’t incorporate all 500 stocks until 1957. From 1957 to the current day, the average stock market return for the S&P 500 index is around 8%, while the average stock market return since the inception of the S&P 500 in 1923 is around 10%.

It’s important to note that while the average stock market return over the last century is around 10%, this is not a concrete percentage. The stock market return rates vary every year. For example, in 2013, the stock market return rate was around 32%, while in 2015, the annual return rate was only 1.31%. However, based on the stock market’s history, 10% is a reasonable expectation when investing in the market long term.

Stock Market Returns Over the Last 30 Years

Looking at the stock market returns over an extended period of time can be very helpful when trying to understand how return rates work. Compare the past five years to the past 30 years to see how returns fluctuate and how trends emerge based on events.

Five-Year Stock Market Return Rates

The average stock market return rate for the S&P 500 index over the last five years (between 2014 and 2019) was around 15%.

10-Year Stock Market Return Rates

From 2009 to 2019, the average stock market return rate of the S&P 500 index was 14.7%. This is significantly above historical averages and is largely due to the bull market for stocks that started at the bottom of the 2009 financial crisis market decline.

20-Year Stock Market Return Rates

The average stock market return for the last 20 years was around 5.9%. This period of time includes several large stock market events like the dot-com bubble and several financial crises.

30-Year Stock Market Return Rates

During the last 30 years, the average stock market return was around 10%. More specifically, the average stock market return between 1992 and 2016 was 10.72%. However, the annual average return rate fluctuated quite a bit, dropping as low as -37% in 2008 and rising as high as 37.2% in 1995.

How To Make the Most Money in the Stock Market

There are several things you can do to gain a positive return when investing in the stock market. While we can’t make any recommendations, we have compiled the top tips to keep in mind when investing. These include:

  • Invest for the long term: While making a profit by investing in the stock market for a short period of time is possible (think day trading), it’s not necessarily the norm and not the best way to ensure real earning potential. Long-term investments yield a long-term accumulation of compound interest, which ultimately results in your assets increasing in value. The longer you keep your money in your investment account, the more it will grow, and the more you will ultimately gain from the stock market.
  • Diversify your portfolio: Investing in the stock market comes with risks no matter how large or small your investment. That’s why it’s important to not invest all of your money in one company. If you diversify your portfolio, you essentially spread the risk across multiple investments and shield your assets from significant losses. The more diverse your portfolio is, the better prepared you’ll be to handle stock market shifts.
  • Regularly invest: Continually putting money into your investment account is a sure way to continue growing your wealth. While years of compounding returns can certainly add up, these returns will only reach a certain amount if you don’t continue to invest money into the accounts. The more money you regularly contribute to your investments, the more your investments will grow and the higher return you’ll experience.

Understanding the average stock market returns is a great step in learning about investing and how it can impact your overall long-term wealth. The longer you keep your money invested, the more return you stand to gain.