The average annual return in the stock market

Updated March 23, 2017

The average annual return for the U.S. stock market is often determined using the S&P 500 stock index. This index includes the 500 largest publicly-traded companies in the U.S. and Standard & Poor's states these stocks make up 75 per cent of the U.S. stock market value. There has been wide swings to the positive and negative over the years in the U.S. stock market.

Historic Annual Return

For the six decades from 1950 until the end of 2009, the average annual return for the S&P 500 was 11.0 per cent. This return breaks down as 7.2 per cent per year in price gain and 3.8 per cent per year in dividends. If 60p was allowed to compound for the 60 years at this 11 per cent annual rate, it would have been worth £357 at the end of 2009.

Decade by Decade

Breaking the history of stock market returns into decades gives an idea of what an investor might have earned with long term stock investments. The decade breakdown of S&P 500 returns for the last six decades shows a range of average annual returns and the importance of dividends in certain time frames: 1950s, annual return: 19.3 per cent, price return: 13.2 per cent; 1960s, annual return: 7.8 per cent, price return: 4.4 per cent; 1970s, annual return: 5.8 per cent, price return: 1.6 per cent; 1980s, annual return: 17.3 per cent, price return: 12.6 per cent; 1990s, annual return: 18.1 per cent, price return: 15.3 per cent; 2000 to 2009: annual return, minus 1.0 per cent, price return: minus 2.7 per cent.

Highs and Lows

The average annual return does not show how much stock values can fluctuate year to year. In the 60 year time frame, there were 11 years when the S&P 500 gained more than 30 per cent. The greatest annual gain was 52.6 per cent in 1954. The 1990s were a great time for stocks with 30 per cent plus gains in both 1995 and 1997. Losing years tend to be in the 10 per cent loss range or less. Only three years had S&P 500 losses greater than 20 per cent and the largest was 2008 when the stock index declined by 37.2 per cent.

Facts on Averages

Large yearly changes in the stock market return can have a significant effect on the average annual return. At the end of 2007, the average stock market return for the last 20 years was 11.8 per cent. After the large market decline in 2008, the 20 year average dropped to 8.4 per cent. The long term average annual return on the S&P 500 lost a quarter of it value due to one bad, down market year.

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About the Author

Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.