What is the average stock market return?

When you hear people talking about investing in the stock market, you may wonder if it’s the right investment for you and if it will provide the return on investment you need to meet your financial goals.

One way to measure the potential return from long-term investments in the stock market is to look at the average rate of return. This is the percentage that indicates how much the value of an investment in the market has grown or shrunk over time, and it can be based on price changes alone or on total return, which also includes dividends.

When you see “stock market return,” it typically refers to total return for a broad market index such as the S&P 500, which includes both price changes and reinvested dividends unless stated otherwise. When you see “average return,” it describes the simple average of a series of yearly returns, while “compound return” describes how your money grows over time when returns are earned on both your original investment and past gains.

Whether you're thinking about investing in stocks or are just curious about how the stock market works, understanding how average and compound returns work is a helpful place to start.

What is the average total return on stocks?

The average annual total return from the U.S. stock market, which includes both price changes and reinvested dividends, has been nearly 16% over the past 10 years. In simple terms, this average total return means that if the market earned a 16% total return in a year, a $1 investment at the beginning of that year would have grown to about $1.16 by the end of the year.

Of course, the historical average for the stock market is only a measure of past performance and doesn’t reflect future success. That 16% figure is an average of the individual yearly total returns in this period. It does not mean the market earned exactly 16% every year. From 2016 to 2025, here’s the S&P 500 Index’s total return year by year:

During this time period, the annual total return of the S&P 500 ranged from an 18.11% loss in value to a 31.49% gain. If you calculate the simple average of these yearly total returns, the annual rate of return is 15.9%, which is different from the single compound return an investor would have earned by staying invested across all 10 years.

How rate of return calculations work

Understanding the terms can help you compare investments more confidently.

Price return looks only at how the market price of a stock or index changes over a period. For example, if an index starts the year at 100 and ends at 110, the price return is 10%, and this ignores any dividends paid during the year.

Total return includes both price changes and any income from the investment, such as dividends, assuming those dividends are reinvested. Many broad market index numbers that investors look at, including the ones in this article, are based on total return, not just price return.

Average annual return is typically the simple average of a series of returns. If an investment earns 10%, then 5%, then 15% in three different years, the average annual return is 10% because you add the three yearly returns and divide by three. This average helps you summarize a period, but it does not tell you exactly how your money grew over time.

Compound return, sometimes called annualized return, shows the steady yearly rate that would have turned your starting balance into your ending balance over a period. It reflects the effect of earning a return on both your original investment and any gains or losses in previous years. Investors often focus on compound returns because they describe how an investment actually grew over time.

As a quick example: If an investment gains 100% in one year and loses 50% in the next, the simple average annual return is 25%, but the investment ends where it started. The compound return over the two years is 0%.

Both average and compound returns can be calculated based on price returns or total returns. When you compare investments, it is important to know whether you are looking at a price-based figure or a total return figure that includes dividends, as dividend income can be a defining value proposition for many investments.

What is the average stock market return after 10, 20 or 30 years?

Assuming a historically conservative compound annual total return of 10%, a one-time investment of $10,000 in the stock market would provide the following hypothetical values over time: :

This example assumes a constant 10% compound annual total return, compounding every year, and reinvesting all dividends. Actual market returns vary from year to year, so your real compound return may be higher or lower than this illustrative figure.

Is a 10% return on investment realistic?

A 10% annual return is often used as a long-term historical estimate for the stock market’s average total return, but it is not a guaranteed result in any given year. The 10% figure is usually based on a time-weighted average return that smooths out shorter-term swings, so it does not fully reflect year-over-year volatility, stock surges and recessions.

In reality, an investment can exceed expectations one year and fall short the next, which affects your actual compound return over time. This is why most financial advisors recommend investing in a balanced portfolio that mitigates risk by including a mix of stocks, bonds and other investments. 

It’s also important to remember that the rate of return on an investment in the stock market doesn’t account for inflation. According to the U.S. Department of Labor’s Consumer Price Index, the average annual rate of inflation has been roughly 2.3% since 2000.

This means a 10% return on an investment in any given year would be closer to around a 7% to 8% inflation-adjusted or “real” return. Also, remember profits on stock investments are subject to capital gains taxes, which can further lower the amount you keep.

What are some ways to invest in the stock market?

Understanding how average and compound returns work is only one part of investing in the stock market. The way you choose to invest also affects how closely your results may track broad market total returns, how much risk you take on and how diversified your portfolio is.

There are many ways to invest in the stock market. While some investors like to buy individual stocks, hoping to make short-term gains, that approach can be risky and may lead to returns that are very different from the overall market. For the average investor, it is often more practical to consider taking a diversified approach to investing that spreads risk across many companies and sectors, decreasing the impact any one investment can have on your total wealth.

Individual stocks

If you’re experienced in investing in the stock market, you may want to invest in individual stocks. Investing in single companies can offer the potential for higher returns than the broader market, but it also increases the risk that your results will be worse than the market’s average total return.

Before picking individual stocks, investors may want to spend the time to thoroughly understand the company’s business model, financial statements, competitive position and industry trends. This more concentrated approach can be riskier and can also lead to greater losses.

Index funds

Index funds, which can be either exchange-traded funds (ETFs) or mutual funds, allow you to invest in a fund that follows a specific stock index, such as the Dow Jones Industrial Average (DJIA) or the S&P 500. These funds are often used by investors who want their long-term total returns to be similar to the broad market averages discussed earlier, rather than relying on a few individual stock picks.

Even though you’re still subject to the volatility of the market, index funds distribute risk among multiple stocks, providing you with a more balanced approach to investing that can help you benefit from the market’s long-term compound growth. While index funds aim to deliver investment returns that follow the performance of a specific index, real-life returns often deviate from the benchmark due to fees, taxes and trading differences.

Mutual funds

Mutual funds are professionally managed investment vehicles that pool together investors’ money to invest in a portfolio of securities, often made up of different assets like stocks, bonds and other securities. One of the main benefits of a mutual fund is the built-in diversification it can add to an investment portfolio.

When you invest in a mutual fund, you purchase a share of that fund. This means you do not directly own the assets the fund purchases, but as the fund’s total holdings increase or decrease in value over time, the value of your investment also fluctuates. Given this, investors will gain or lose value of their shares depending on the fund’s performance. Nevertheless, mutual funds may be a good option for investors looking to diversify their portfolios in a relatively simple and convenient way.

Exchange-traded funds (ETFs)

Some investors may also be interested in ETFs, which allow investors to buy a curated portfolio of various stocks in a single trade. Many stock ETFs are designed to track a specific index, so their total returns may be similar to the index-level returns used when people talk about the market’s historical averages. However, other ETFs track specific sectors or themes.

Some ETFs also allow you to buy fractional shares, which can make it easier to invest smaller amounts consistently. ETFs allow people to invest in stocks that follow a certain benchmark or sector or fall into a specific market capitalization, which can make it easier for investors build a diversified portfolio aligned with their goals.

The bottom line

Investing in the stock market is an important part of any financial planning strategy, especially when you understand how average and compound returns relate to your long-term goals. The challenge is balancing the potential for long-term total return against the short-term volatility.

Choosing how you invest, whether through individual stocks, ETFs or mutual funds, influences how closely your results may track broad market averages and how much risk you take on. Working with an experienced financial advisor can help you navigate a volatile stock market, evaluate the trade-offs between risk and return and structure your investments in a way that supports your goals.

View Disclosures