Historical stock market returns may help you better understand your investing strategy. By looking back, you can see how volatility impacted the market during certain years and how the market recovered afterward. Over time, the stock market has returned, on average, 10% per year. Long-term investors can look at historical stock market returns by year to better understand how to manage their portfolios.
At the bottom of this article, you'll find a table of historical annual stock market returns for the S&P 500 index for the period of 1980 to 2021.
- The stock market has averaged positive returns for many years, regardless of the negative price dips.
- Price drops of less than 10% from the 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, but historical data shows that the positive years far outweigh the negative years.
For example, the 10-year annualized return of the S&P 500 Index as of Dec. 31, 2021, was about 14.25%. In any given year, the actual return you earn may be quite different than the long-term average return, which averages out several years' worth of performance. Over a 10-year period, a stock market index could be up, but during one of the years in that 10-year period, it could have been down.
When a market is experiencing volatility or a period of negative returns, you may hear the media talking a lot about market corrections and bear markets. A market correction means the stock market went down less than 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 for at least two months. A bear market can last a few months or over a year.
Even if the market experiences a correction or a bear market, such as it did in 2020, that's not to say it won't end the year on a positive note. In 2020, the stock market entered a bear market in March but ended the year up by over 18%.
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 over 36% of its value. If you had invested $1,000 at the beginning of the year in an index fund, you would have had almost 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%. This would have brought your value up to $794, which still comes out to less than your $1,000 starting point.
If you stayed invested through 2010, you would have seen another increase of 15%. Your money would have grown to about $913, though still short of a full recovery. In 2011, another positive year occurred and you would've seen another boost, but only by 2%. It would not have been until 2012's increase of another 16% that you would have been over the $1,000 original investment. By then, you'd have about $1,080.
If you stayed invested in the market, the 2008 down year would not have been devastating to you. If you sold, however, and moved your money into safer investments, it would not have been able to recover its value over that same time period.
No one knows ahead of time when 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 risk associated with dipping your financial toes in the ponds of stock investing, America's financial markets may produce great wealth for its participants over time. Stay invested for the long haul, continue to add to your investment, and manage risk appropriately, and you will be on a good track to 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 likely 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 the best wealth-building strategy.
Calendar Returns vs. Rolling Returns
Most investors don't invest on Jan. 1 and withdraw on Dec. 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.
Look at graphs of historical rolling returns for a perspective that extends beyond a calendar year view.
The table below shows calendar-year stock market returns from 1980 to 2021.
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, 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.
The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.