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 whether the value of an investment in the market has grown or shrunk over time.

Whether you're thinking about investing in stocks or are just curious about how the stock market works, understanding its average return is a great place to start.

What is the average rate of return on stocks?

The average annual rate of return from the U.S. stock market has been over 11% over the past eight years. What this means, in theory, is if you invested a dollar in the stock market at the beginning of the year, you’d have $1.11 at 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. From 2015 to 2024, here’s the S&P 500 Index’s annual rate of return year by year:

During this time period, the annual return of the S&P 500 ranged from a 20.3% loss in value to a 29.8% return. But when you take the average over the 10-year period, the annual rate of return is 11%.

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

Assuming a historically conservative average annual rate of return of 10%, a one-time investment of $10,000 in the stock market would provide the following returns :

This assumes compounding interest, reinvesting your dividends every year and that the average rate of return remains stable at 10%.

Is a 10% return on investment realistic?

While a 10% return is a time-weighted return, it can’t account for year-over-year volatility, stock surges and recessions. An investment can exceed expectations one year and fall short the next.

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 rate of inflation has been roughly 2.3% since 2000.

This means a 10% return on an investment usually provides a real-world annual rate of return of around 6% to 7%.

Also, remember returns on stock investments are subject to capital gains taxes.

What are some ways to invest in the stock market?

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 is risky. For the average investor, it is probably better to consider taking a diversified approach to investing.

Individual stocks

If you’re experienced in investing in the stock market, you may want to invest in individual stocks. While investing in individual stocks can offer the potential for higher returns, it can require significant research and tolerance for risk. Before picking individuals stocks, investors may want to spend the time to thoroughly understand the company’s business model, financial statements, competitive position and industry trends. This approach is more risky, and can also lead to greater losses.

Exchange-traded funds (ETFs)

Some investors may also be interested in exchange-traded funds (ETFs), investors to buy a curated portfolio with shares of various stocks. Some ETFs also allow you to buy fractional shares. ETFs allow people to invest in stocks that follow a certain benchmark or sector, or fall into a specific market-cap.

Index funds

Index funds, which can be either 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. While you’re still subject to the volatility of the market, these funds distribute risk among multiple stocks, providing you with a more balanced approach to investing.

The bottom line

Investing in the stock market is an important part of any financial planning strategy. The challenge is balancing the potential for long-term investment gains against any short-term volatility that may affect your financial future. Working with an experienced financial advisor can help you navigate a volatile stock market and structure your investments.

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