What is the average stock market return? - NerdWallet (2024)

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 the average 10% interest rate is reduced byinflation. Investors can expect a loss of purchasing power of 2% to 3% every year due to inflation.

Ofscholarshipare aimed at long-term investments: money you won't need for the next five years. For shorter terms, you'll want to stick with lower-risk options, like an online savings account, and in exchange for that security you'd expect a lower return.

The average stock market return is not always average

While 10% may be average, the return in any given year is far from average. Between 1926 and 2022, returns were in the 'average' range 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 the stock market.

But even when the market is volatile, returns in any given year are usually positive. Of course, it doesn't increase every year, but over time the market has increased in about 70% of the years.

5-year, 10-year, 20-year and 30-year S&P 500 returns

Below you will find a table showing the price returns of the S&P 500 over various time frames through the end of 2022.

The table shows that although the market has an average annual return of 10% over the long term, returns can vary significantly from year to year. The five-year return determines the post-pandemic rise and recovery in 2023. The 20-year return includes the Great Recession, and the 30-year return includes the dot-com crash of the early 2000s.

What can be expected for a stock market return

There are no guarantees in the market, but this average of 10% has remained remarkably stable for a long time.

So what kind of returns can investors reasonably expect from the stock market today?

The answer to that depends a lot on what has happened recently. But here's a simple rule of thumb: the higher the recent returns, the lower the future returns, and vice versa. When estimating how much your stock investment will return over time, we generally recommend an average annual return of 6%, understanding that you will experience both down and up years. You can use NerdWallet'sinvesteringscalculatorto see what 6% growth looks like based on how much you plan to invest.

1. Tempers your enthusiasm in good times.Congratulations, you're making money. But when stock prices are soaring, remember that the future will likely not be as good as the past. It seems like investors have to learn this lesson again during every bull market cycle.

2. Become more optimistic when things look bad.A bearish market should be a reason to celebrate: you can buy stocks at attractive valuations and expect higher future returns.

3. You only get the average return if you buy and hold.If you trade in and out of the market regularly, you can expect to make less, sometimes much less. Commissions and taxes eat away at your returns, while poorly timed trades erode your bankroll. Study after study shows that beating the market is nearly impossible, even for professionals. It's good to rebalance your portfolio every now and then. This means selling some of the investments that have outperformed expectations and buying some that have underperformed to bring the portfolio back to its intended composition. But other than a little 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 clean nest egg and continuing to grind out your golden years.

ready to get started?

If the market's long-term returns look attractive to you, it's easy to get started. You must first open a brokerage account, which allows you to buy and sell stock investments. If you're not sure where to open your account, you can check out our list of these accountsbest online brokers.