Long Term Equity Market Returns: A Guide to Investing for Success

Investing in the stock market can be intimidating, but understanding long-term equity market returns can help you navigate the process with confidence. Historically, the US stock market has provided an average annual return of around 10% over the long term.

This is significantly higher than other investment options, such as bonds or savings accounts. In fact, a study found that from 1928 to 2020, the S&P 500 index returned an average of 10.1% per year.

Investing for the long term allows you to ride out market fluctuations and take advantage of compound interest. For example, if you invest $1,000 at a 10% annual return, it will grow to over $10,000 in just 20 years.

The history of the S&P 500 tells a story of America's economic ups and downs. It's a rollercoaster ride of growth and decline, with each major downturn followed by a recovery.

The postwar boom from 1957 to 1969 was a period of unprecedented economic expansion. The index climbed steadily, reaching about 800 points, reflecting the nation's growing industrial might and rising middle class.

Stagflation from 1970 to 1981 was a major decline, with the index dropping below 360 points. This was due to inflation and economic stagnation, which worried investors.

The index had its worst fall during the financial crisis from 2007 to 2009, dropping nearly 57% from October 2007 to March 2009. After that, the market entered its longest bull run in history, rising 330% over 10 years.

Here's a breakdown of the yearly returns from the S&P 500, including dividends, over the past 10 years:

The S&P 500 has outpaced the historical average with an annual average return of 13.3% over the past 10 years. This is similar to the 12.55% return of the Russell 3000 index.

Returns can vary significantly from year to year, with some years delivering much lower returns than the average. In fact, six out of ten years between 2012 and 2021 resulted in outcomes that were very different from the 14.8% annualized average return during that decade.

Returns of 20% or more occurred in 19 years since 1972, while losses of more than 20% happened in only three years. The market's results from one year to the next can be unpredictable, but over time, it has gone up just over 70% of years.

Here's a breakdown of yearly results since 1972: ReturnsYearsReturns of 20% or more19Returns between 10% and 20%13Returns between 0% and 10%9Losses between 0% and 10%4Losses between 10% and 20%2Losses of more than 20%3

The S&P 500's average annual return is 10%, but year-to-year returns can vary significantly.

Over the past 30 years, the S&P 500 has had a 9.67% average annual return.

The 5-year return factors in the post-pandemic surge and the 2023 recovery, with an average annual return of 15.36%.

A 10-year return includes the 2020 pandemic, with an average annual return of 11.02%.

The 20-year return includes the Great Recession, with an average annual return of 9.00%.

The 30-year return includes the dot-com crash of the early 2000s, with an average annual return of 9.67%.

Here's a breakdown of the S&P 500's average annual returns over different timeframes:

Returns can be volatile, but the stock market has a long-term average annual return of 10% or more. This is based on data from the S&P 500, which has averaged over 10% since its introduction in 1957.

In fact, if you had invested $100 in 1928, you'd have nearly $800,000 as of the end of 2023, according to data compiled by NYU Stern professor Aswath Damodaran. That's a staggering return, but it's not the only example of the stock market's power.

The market's results from one year to the next can vary significantly from the average. For example, between 2012 and 2021, there were six years that resulted in outcomes that were very different from the 14.8% annualized average return during that decade.

Here are some specific examples of how the market has performed over different time frames:

As you can see, the market's performance can vary significantly over different time frames. However, over the long term, the stock market has consistently outperformed other investments, including Treasury bonds, corporate bonds, gold, and residential real estate.

The S&P 500 Index is a market capitalization-weighted index of the 500 leading publicly traded companies in the U.S.

It's overseen by Standard & Poor's Dow Jones Indices, a division of S&P Global Inc. (SPGI).

This index has a long history, dating back to the 1920s when it was a composite index tracking 90 stocks.

The S&P 500 Index took on its present size and name in 1957.

The average annualized return from 1928 to November 2024 was 10.06%.

Returns are essentially a reversal of a purchase, where the buyer gets their money back or exchanges the item for something else. This can happen for various reasons, such as a change of heart, the item not fitting, or it being defective.

A return can be initiated within a certain timeframe, usually 30 days, as outlined in the store's return policy. This allows buyers to assess the item and decide if it's a good fit.

The store's return policy is usually outlined on the receipt or on their website. It's essential to read and understand this policy before making a purchase.

Returns can be done in-store or online, depending on the store's return policy. Some stores may require buyers to fill out a return form, while others may have a self-service return process.

A refund is usually processed within a few days after the return is received by the store. The buyer can choose to receive a refund to their original payment method or have it credited to their store credit card.

The stock market's long-term trend is upward, but it's influenced by various factors that can affect your returns. These factors include a company's future value that investors are willing to pay today.

Stock valuations are influenced by a company's future value, but what drives that value? At its core, stocks reflect a company's future value that investors are willing to pay today.

The concentration of influence in a few major companies is a significant factor in the S&P 500's returns. This concentration of influence has important implications for investor returns.

Investing in the S&P 500 gives you the benefits of diversification, but it's not a guarantee against losses. If a few major companies have a rough year, it can greatly affect your returns.

Higher growth and higher interest rates are expected to support core fixed income returns and investment spending. This is according to J.P. Morgan Asset Management, which forecasts higher cash rates and growth.

Artificial intelligence adoption may boost revenue growth and margins, especially for U.S. large caps. In fact, the adoption of AI could support higher revenue growth and margins, especially for U.S. large caps.

The transition from monetary to fiscal activism is expected to lead to steeper curves and higher inflation volatility. This could have significant implications for investors.

Economic nationalism is another challenge, and key to our FX forecasts. We expect a weaker U.S. dollar, but USD depreciation will be more muted than we forecast last year.

Here are some key themes and their impacts on our asset class returns:

Investors should be aware of these challenges and opportunities as they plan their investment strategies.

Factors influencing returns can be complex and multifaceted. The stock market's performance is not a straightforward upward trend, but rather a reflection of various underlying factors.

Interest rates have a significant impact on stock prices. Low interest rates can boost stock prices by increasing demand for stocks over other assets like bonds. This is because bonds often don't pay much interest in low-interest-rate environments.

High interest rates, on the other hand, can hurt stock prices. This is because high interest rates can make borrowing money more expensive for companies, potentially hurting their bottom lines.

The S&P 500's performance is also influenced by its components. If a few major companies have a rough year, it can greatly affect your returns. This concentration of influence has important implications for investor returns.

In fact, the returns of the S&P 500 have become increasingly beholden to a relatively few companies. This means that the performance of a small group of companies can have a disproportionate impact on the overall index's returns.

Here's a rough breakdown of the S&P 500's sector makeup over the years:

The market's results from one year to the next can vary significantly from the average. For example, the 2012-21 period saw returns ranging from a 4.4% decline to over 30% gains in some years.

Diversifying your investments is key to minimizing risk and maximizing returns. This can be achieved by putting money into an index fund that reflects a broad range of stocks, not just one company.

Investing experts like Warren Buffett and Benjamin Graham recommend keeping investments for the long term, a strategy called buy-and-hold investing. This approach helps even out investment swings over time.

Annual returns are calculated in a way that may not represent actual investing habits, so it's essential to keep this in mind when looking at figures.

Diversified investing is a crucial strategy for any investor. It involves spreading your investments across different asset classes, sectors, and geographic regions to minimize risk and maximize returns.

Investing in a broad index fund that tracks a range of stocks, not just one company, is a good way to diversify your portfolio. This can help you avoid putting all your eggs in one basket and reduce the impact of any one stock's performance on your overall portfolio.

The S&P 500 index, for example, continuously rebalances to reflect companies that are growing or shrinking, so the 500 companies in it today may not be the same as those in it five, 10, or 50 years from now.

Investing for the long term can help even out market fluctuations and give your investments time to grow. In fact, studies have shown that buy-and-hold investors tend to experience significant gains over the long term.

Here are some average annualized returns for the S&P 500 over different time periods:

As you can see, the returns can vary significantly over different time periods. However, the key is to focus on the long-term average returns and not get caught up in short-term market fluctuations.

Dollar-cost averaging is another strategy that can help you invest consistently and avoid market timing. By investing a fixed amount periodically, you can reduce the impact of market volatility on your portfolio.

Including dividends in your investment calculations can make a significant difference in your returns. S&P 500 returns do not always include dividends, but some data providers do offer calculations of how returns change if dividends are reinvested.

Reinvesting dividends can be a smart move, especially for long-term investors. Several charts on this page include our own calculations of S&P 500 returns with dividends reinvested.

It's worth noting that these calculations can provide a more accurate picture of potential returns. Our own calculations show that reinvesting dividends can add up over time, making a big impact on overall returns.

The S&P 500 has undergone significant changes over the years, with its composition shifting from industrial and energy companies in 1957 to technology firms leading the way today.

In the 1990s, financial and consumer companies dominated the index, but now just seven companies, known as the "Magnificent Seven", account for about one-third of the entire index's market value.

These seven companies - Alphabet Inc., Apple Inc., Amazon.com Inc., Meta Platforms Inc., Microsoft Corp., NVIDIA Corp., and Tesla - contribute to nearly half of the S&P 500's returns.

The S&P 500 is no longer a broad market index, but rather an index heavily influenced by a few major companies.

Investing in the S&P 500 means you're essentially investing in these seven companies, which can greatly affect your returns.

The S&P 500's concentration of influence has significant implications for investor returns, making it essential to consider this when making investment decisions.

Investors who buy-and-hold tend to experience significant gains over the long term, but the concentration of influence in the S&P 500 can make it challenging to achieve consistent returns.

Investing in the stock market can be intimidating, but it doesn't have to be. The key is to understand the basics and make informed decisions. Diversifying your investments is crucial, as it helps spread out the risk. This can be achieved by putting money into an index fund that reflects a broad range of stocks, not just one company.

Investing for the long term is also a strategy that works, as it helps even out the swings in the market. Maintaining investments for the long term can help investments and their returns get closer to the average. The S&P 500 is a great example of this, as it continuously rebalances to reflect companies that are growing or shrinking.

You can't invest in the S&P 500 directly, but you can invest in an index fund that tracks its performance. Index funds charge fees that cut into returns, but they're often low and can be worth it for the diversification and stability they provide.

A good investing strategy is built on a solid foundation, and that's exactly what we're going to explore in this section. A new economic era is emerging, and it's going to reshape our return assumptions for private markets.

Higher base rates, rising capital investment, escalating geopolitical tensions, and greater inflation volatility are all powerful forces that are coming into play. These factors are expected to create a generational opportunity in the most rate-sensitive real assets, such as real estate.

Real estate valuations are re-rating, providing a chance for investors to get in on the ground floor. Other real assets, like infrastructure, timber, and transport, offer stable returns and inflation protection. Commodity returns are continuing to outpace inflation.

We're also seeing a rise in AI and greater private sector investment spending, which is benefiting private equity and venture capital. Hedge funds are benefiting from elevated base rates, which are nudging alpha higher.

Manager dispersion in alternatives has been wide historically, and this trend is likely to continue. This highlights the importance of manager selection in achieving strong returns.

Here's a breakdown of historical annualized returns by manager's ranking:

As you can see, there's a significant difference in returns between top-performing and bottom-performing managers. This emphasizes the importance of doing your research and selecting a skilled manager to work with.