Do you want to know what is the actual average stock market return? We’ll go into it in detail here. You’ve been investing your money in the stock market for the last couple of years (months, weeks). You’re working hard to save for your retirement. How much money do you need in (early) retirement? You need to make all kinds of assumptions; how much money will you spend? How long do you need to get there? And what is the average stock market return?

Economics is my passion and my first love. Why? Because some things seem so logical and then math shows up to the party. When you’re calculating the average stock market return, percentage returns aren’t reliable. Why tho? Example: you have invested $1,000 in the stock market. Your first year, you lose 30% of your initial value. That hurts. You now have $700 in the stock market.

Why The ‘Average’ Stock Market Return Doesn’t Work

Luckily, in your second year, you gain 30%. YEAHH, that means I’m back on track for the $1,000 right? Well, almost. $700 + 30% return = $910. When you have had a loss, it takes a larger percentage growth to return to your initial value. That’s why it’s best to check an online calculator that takes the Compound Annual Growth Rate (CAGR).

Why The ‘Average’ Stock Market Return Doesn’t Work

The average stock market return depends on the timeframe of the market, what you consider the stock market, and what assumptions you make. We will look at the S&P 500, which includes the biggest 500 companies from the US market. In short, the average stock market return is 7%. That is the simple answer.

What Is The Average Stock Market Return?

There are many factors that influence your average annual stock market return. Let’s dive into them! Check Your Investing Period Watch The Fees Don’t Forget To Diversify

Factors That Influence Your Stock Market Return

Even when we look at the average stock market returns over a period of 10 years, there is no real average that we can point out. Over the years, there are a couple of periods with negative returns, however, they are few and the negative returns are minimal. In general, about 70% of the years the stock market goes up.

Stock Market Returns Aren’t Average

When we check two other large index funds, we can see what their average return is. We will look at the Vanguard Total Stock Market Index Fund Admiral (VTSAX), which is one of the most popular funds at the moment. The fund was created in 1992 and has the entire US equity market represented in the fund. The cost of the fund is just 0.04%. VTSAX returns 13.09% over a 10-year period and 6.83% since inception in 1992 (date of writing June 2020).

What About The Average Return Of The Entire Market?

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