Historical stock market returns provide a great way for you to see how much volatility and what return rates you can expect over time when investing in the stock market. In the table at the bottom of this article, you'll find historical stock market returns for the period of 1986 through 2019, listed on a calendar-year basis.
- The stock market has averaged positive returns for many years, regardless of the negative price dips.
- Negative index price movements of less than 10% of their previous high are called "market corrections."
- Bear markets occur when index prices fall 20% or more.
- Wealth is built over the long run by staying in the market, investing in quality stocks, and adding more capital over time.
How Often Does the Stock Market Lose Money?
Negative stock market returns occur, on average, about one out of every four years. Historical data shows that the positive years far outweigh the negative years. Between 2000 and 2019, the average annualized return of the S&P 500 Index was about 8.87%. In any given year, the actual return you earn may be quite different than the average return, which averages out several years' worth of performance.
You may hear the media talking a lot about market corrections and bear markets:
- A market correction means the stock market went down over 10% from its previous high price level. This can happen in the middle of the year, and the market can recover by year-end, so a market correction might never show up as a negative in calendar-year total returns.
- A bear market occurs when the market goes down over 20% from its previous high. Most bear markets last for about a year.
The pattern of returns varies over different decades. In retirement, your investments may be exposed to a bad pattern where many negative years occur early on in retirement, which financial planners call sequence risk. Although you should expect a certain number of bad years, it doesn't mean you shouldn't invest in stocks; it means you need to set realistic expectations when you do.
Time in the Market vs. Timing the Market
The market's down years have an impact, but the degree to which they impact you often gets determined by whether you decide to stay invested or get out. An investor with a long-term view may have great returns over time, while one with a short-term view who gets in and then gets out after a bad year may have a loss.
For example, in 2008, the S&P 500 lost 37% of its value. If you had invested $1,000 at the beginning of the year in an index fund, you would have had 37% less money invested at the end of the year, or a loss of $370, but you only would have experienced a real loss if you had sold the investment at that time.
However, the magnitude of that down year could cause your investment to take many years to recoup its value. After 2008, your starting value the following year would have been $630. In the next year, 2009, the market increased by 26.46%. This would have brought your value up to $796, which still comes out to less than your $1,000 starting point.
In 2010, if you stayed invested, you would have seen another increase of 15.06%. Your money would have grown to $915.88, though still short of a full recovery. In 2011, another positive year occurred and you would've seen another boost, but only by 2.11%. It was not until 2012's increase of another 16.00% that you would have been back over the $1,000 invested with an investment value of $1,085.
If you stayed invested in the market, the 2008 down year was not devastating to you. If you sold, however, and moved your money into safe investments, it would not have been able to recover its value over that same time period.
No one knows ahead of time when those negative stock market returns will occur. If you don't have the fortitude to stay invested through a bear market, then you may decide to either stay out of stocks or be prepared to lose money, because no one can consistently time the market to get in and out and avoid the down years.
If you choose to invest in stocks, learn to expect the down years. Once you can accept that down-years will occur, you'll find it easier to stick with your long-term investing plan.
The uplifting news is this, despite the bad press about the stock market and the risk associated with dipping your financial toes in the ponds of stock investing, America's financial markets produce great wealth for its participants over time. Stay invested for the long-haul, continue to add to your investment, and manage risk appropriately, you will meet your financial goals.
On the other hand, if you try and use the stock market as a means to make money fast or engage in activities that throw caution to the wind, you'll find the stock market to be a very cruel place. If a small amount of money could land you big riches in a super-short timespan, everybody would do it. Don't fall for the myth that short-term trading is a wealth-building strategy.
Calendar Returns vs. Rolling Returns
Most investors don't invest on January 1 and withdraw on December 31, yet market returns tend to be reported on a calendar-year basis.
You can alternatively view returns as rolling returns, which look at market returns of 12-month periods, such as February to the following January, March to the following February, or April to the following March. Check out these graphs of historical rolling returns, for a perspective that extends beyond a calendar year view. The table below shows calendar-year stock market returns over a 30-year period.
Historical S&P 500 Index Stock Market Returns
Frequently Asked Questions (FAQs)
What are the average returns of the stock market long term?
On average, as measured by the S&P 500, the stock market has returned roughly 10% per year. This can vary widely each year depending on a variety of market factors.
How do I get bigger returns from the stock market?
To do better than the stock market average, you have to invest in a more aggressive portfolio. International stocks, small- and mid-cap stocks, and growth stocks are examples of securities with higher growth potential, but these also bring higher risks. Discuss your investing goals with a financial advisor to help you decide the right mix for an aggressive growth strategy.
How do I predict future stock market returns?
Past market performance can serve as a guide, and the longer the range you're forecasting, the more likely the market is to follow similar trends. However, no one can perfectly predict when the market might have major upturns or prolonged downturns. It's important to plan for the possibility of loss and hedge your risks accordingly.