Understanding the Average Monthly Return on the Stock Market
The stock market, as a long-term investment vehicle, has historically offered an average annual return of around 10% over the past 50 years. This general trend has been punctuated by variable performance, with notable fluctuations from one year to the next.
The Last Decade's Performance
The past decade has presented a unique trajectory for the stock market. Since 2012, the SP 500 index experienced an average annual return of 14.8%. However, this impressive average disguises the volatility that investors often encounter. The year 2014 stands out as the lone year close to this 14.8% average, underlining the unpredictability inherent in short-term performance.
Long-Term Averages over 10, 30, and 50 Years
To gain a more comprehensive understanding, let us examine the stock market's average annual returns over different time periods using the SP 500 as a proxy. The data for this analysis is sourced from MoneyChimp.
10 Years (2012-2021)
PERIOD ANNUALIZED RETURN NOMINAL ANNUALIZED REAL RETURN ADJUSTED FOR INFLATION 10 years (2012-2021) 14.8 12.4 3.79 3.0630 Years (1992-2021)
PERIOD ANNUALIZED RETURN NOMINAL ANNUALIZED REAL RETURN ADJUSTED FOR INFLATION 30 years (1992-2021) 9.9 7.3 11.43 5.6550 Years (1972-2021)
PERIOD ANNUALIZED RETURN NOMINAL ANNUALIZED REAL RETURN ADJUSTED FOR INFLATION 50 years (1972-2021) 9.4 5.4 46.69 6.88When we break down the year-to-year returns for the past 50 years, we see a wide range of outcomes. From 1972 to 2021, there were 19 years where returns were 20% or more, 13 years with 10-20% returns, nine years with 0-10% returns, and four years with losses between 0 and 10%. Losses of more than 10% occurred in two years, while three years saw losses more than 20%.
Stock Market Returns Adjusted for Inflation
It's also important to consider stock returns adjusted for inflation. For instance, $1 invested in 1972 would be worth $46.69 today, but its purchasing power has decreased significantly due to inflation. Adjusting for inflation, $46.69 today would have the same buying power as $6.88 in 1972.
In conclusion, while the average annual return on the stock market has been relatively stable over the long term, investors should be aware of the high degree of volatility year over year. Historical data provides a roadmap for long-term investment strategies but does not guarantee future performance. Understanding these patterns, especially when adjusted for inflation, can help in making informed investment decisions.
Key Takeaways:
The average annual stock market return has been around 10% over the past 50 years. The past decade saw an average annual return of 14.8% for the SP 500. The returns can and do vary dramatically from year to year, with some years showing significant losses. Adjusted for inflation, the purchasing power of stock market returns has significantly decreased over the past 50 years.