Average Return of the Stock Market: S&P 500, Dow Jones

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The average return of the stock market over the long term is just above 10%, as measured by the S&P 500 index. Over the past decade, through to March 31, 2022, the annualized performance of the S&P 500 was 14.5%.

The S&P 500 average return is 10.67% annualized since the inception of its modern structure in 1957. Dating back to its earliest pre-modern structure in 1928, the S&P 500 has returned 10.22%. This near-century consistency in the long-term average rate of return supports the often quoted "10% average return on the stock market."

It's important to note that inflation-adjusted returns on the stock market are typically 3-4 percentage points lower than the long-term averages. For example, the return on the S&P 500 since the beginning of valuation in 1928, is 10.22%, whereas the inflation-adjusted return on the market since that time is 7.01%, as reported on moneychimp.com.

S&P 500

Rate of Return

A key takeaway from the above table of stock market returns is that most of the annual returns in the past decade are above the historic average of ~10%. This is an unusually strong 10-year period in the market. It's also noteworthy that the market dropped about 35% from February to March of 2020 but still finished the year with an above-average return.

The Dow Jones average return is 8.70%, as measured by the SPDR Dow Jones Industrial ETF (DIA), from its January 1998 inception through March 2022. The Dow Jones, which consists of 30 stocks, was once the performance benchmark for the stock market. However, the S&P’s broader coverage of 500 stocks makes it the primary market benchmark today.

Dow Jones Industrial Average

Rate of Return

A key takeaway from the above table of Dow Jones net annual returns is that the highest years are generally lower than those of the S&P 500 index, but the lows are not as low. This suggests that the past decade's performance on the Dow Jones was not quite as volatile as the S&P 500. However, this past performance does not necessarily predict future results.

In the short-term, such as periods of one year or less, stock market returns can vary widely. However, for longer periods, such as 10 years or more, market returns tend to remain closer to historical averages. There are many historical examples of market returns and volatility, including the dot-com bubble, the Great Recession, and the Covid bear market.

The dot-com bubble refers to the years 1995 through 1999, where market returns, led by technology stocks, ranged from 21% to 38% in each of those years, averaging double to triple the annual average market return of 10%. The dot-com crash was a decline of 75% from the dot-com bubble peak in 2000 through its bottom in 2002.

During the financial crisis of 2008, the stock market declined by more than 50% from the peak on October 7, 2007, through the bottom on March 9, 2009. Even after three months of downward pressure on prices, stocks still achieved a 27% gain in 2009.

At the onset of the Covid-19 pandemic, the shortest bear market in history was about to begin. In just about one month, from mid-February to mid-March 2020, the stock market declined by nearly 35%. However, from March 2020 through December 2021, the S&P 500 more than doubled.

When measuring stock market returns, the primary benchmark used for U.S. equities is the S&P 500 index, which consists of about 500 of the largest US stocks, as measured by market capitalization. The Dow Jones Industrial Average is a "blue chip" stock benchmark and the tech-heavy Nasdaq is a growth stock benchmark.

As the standard investment disclaimer warns, past performance is no guarantee of future results. However, reasonable expectations can be made about future stock market performance based on long-term averages. For example, the average historical return for the stock market is roughly 10%, which is a reasonable forecast for a long-term period, such as 10 years or more.

Important: While it is rare for the stock market to perform significantly lower than the historical return of 10% over a long-term period, such as 10 years, there are such occurrences in market history. For example, the "lost decade," from January 2000 through December 2009, resulted in a -0.95% annualized return for the S&P 500.

The average stock market return is 10%. However, not every period in the market is average and not every investor's portfolio is average. What this means is that investors are wise to assume returns lower than 10%, such as 7-8%, when forecasting the long-term performance of a portfolio of stocks. Also, most investors don't invest their portfolio entirely in stocks, making a direct comparison to a stock index quite imperfect. It's usually best to compare a portfolio return to an asset class that exhibits the same risk and return characteristics.

More specifically, the idea of an average return means that some holding periods are above average and some holding periods are below average. Generally, the longer the holding period, the greater the odds of achieving long-term average returns. However, investors should never assume 100% odds of achieving average market returns.

Investors are also wise to consider the impact of other factors, and not just the average return on the stock market when making assumptions about returns and building a portfolio. Other factors that impact portfolio returns include:

Tip: See our guide on how to start investing for more details about how investing works, types of investment accounts, portfolio management strategy, and more.

A good stock market return is the long-term average of 10%. However, determining an optimal return will depend upon the investor's goals, risk tolerance, asset allocation, security selection, holding period, and other factors. A minimum return target is to outpace inflation, which averages 3-4% over time, and an optimal target may be the stock market's long-term average of 10%.

What rate of return are Seeking Alpha contributors expecting for the S&P 500 in 2023? Read more here.