The Average Stock Market Return Explained

When it comes to investing in the stock market, it’s essential to understand a concept called the average return. This is the average of a series of stock market returns over a specific period. It’s an important metric to consider when comparing different stock indices and evaluating your trading performance.

The average stock market return varies by company, and you have to account for inflation. For example, the S&P 500 index tracks the performance of the 500 largest companies listed on stock exchanges in the United States. It’s also used as the benchmark for overall stock market performance, and has an average return of around 10% (6%-7% after inflation).

So how does knowing about this affect your investment strategies, and should it be a significant metric to follow? Let’s find out!

What Is a Stock Market Return?

In simple terms, a stock market return is essentially the profit an investor receives on a stock market investment. It also refers to dividends in some cases.

The stock market is generally volatile: The share price of a company could drop or rise significantly due to seemingly unrelated factors. For example, tariff changes between two nations could impact the share price of a logistics company, or a social media post by a company owner or influencer could devalue or boost another type of share.

Because so many factors affect them, tracking these fluctuations can become quite tricky.

For example, the global COVID-19 health crisis caused market volatility for multiple stock market indices. The overall uncertainty caused investors to panic sell, which led to some significant drops. The FTSE 100, the leading share index of UK companies, dropped by 25% in the first three months of  2020, roughly around the time the pandemic began spreading, and fear was at its peak.

However, most people don’t invest over one or two years. Typically, investors will hope that their stocks will grow over the course of 5-, 10-, or even 20-year periods. This is generally considered enough time for market fluctuations to settle. When the average spans an extended period, we get a more accurate representation of how a stock is performing.

The Current Average Stock Market Return

To give you a rough idea of what to expect from average stock market returns, here are some figures that have been taken from the S&P 500.

Average Market Return (5-Year Period)

According to the S&P annual returns from 2019 to 2024, the average stock market return for that period was 14.87%. This is adjusted to 10.30% when accounting for inflation.

Average Market Return (10-Year Period)

From 2014 to 2022, the average S&P 500 stock market return was 12.86%, or 9.78%, when adjusted for inflation. In other words, the past decade has been fairly average in terms of stock market growth. There were major losses in 2015 and 2018, but they evened out over the years. This goes to show the importance of investing with a long-term plan.

Average Market Return (20-Year Period)

For the past two decades, from 2004 to 2024, the average stock market return was 10.47% (and 7.71% when adjusted for inflation). This is a bit lower than the average return and is often attributed to the Great Recession, as well as the huge impact of lockdowns and the destabilized geopolitical situation at the start of 2020s.

Average Market Return (30-Year Period)

And finally, we reach the 30-year period. From 1994 to 2024, the average stock market return was around  10.73% and 7.99% when adjusted for inflation. Many successes and lows contributed to this average, but it shows that the stock market can recover from almost any circumstances given enough time.

However, any shorter term will display potentially significant fluctuations in average returns, both above and below the expected number, even more so when accounting for inflation.

In Conclusion

The average stock market return for the US is often quoted as 10%. However, this isn’t the entire truth. We also need to adjust the number for inflation, and expect it to go below or above this number, even across a few decades, due to financial circumstances and world events.

You may have noticed that this coincides with the nature of stocks: For example, a tech company could experience good and bad years, but if you compare its averages over a long period, its growth or decline will seem much steadier. The tech companies it’s competing with have similar stories in terms of average stock market returns.

Therefore, the average return can be a helpful metric to inform your investments. However, what it really shows is that you need to adjust your strategy based on long-term investment goals.