Historic Stock Market Returns
Investors who are weighing their options may wonder about historic stock market returns so that they can compare those results against other investment opportunities. As you probably know, when you purchase a share of stock you are buying part ownership in a company as each share held signifies a claim on that company’s earnings and assets. Over the short-term, stock price fluctuations are based on investor greed, fear, news, and rumors. Over the long-term, company earnings and performance determine the direction of the stock’s price. The conventional wisdom (supported by historical data) is that investors need to exhibit patience in order to achieve a good stock market return. As stock values can be quite volatile over the shorter-term, quick decisions can lead to missed gains and even losses.
Using the S&P 500 as a Benchmark
The Standard & Poor’s (S&P) 500 is a weighted index of the stock prices of 500 large-cap U.S. stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ. Along with the Dow Jones Industrial Average (DJIA), the S&P 500 is one of the two most widely-followed indexes of large-cap U.S. stocks.
Stock Market Returns over the Decades
To review the most relevant data, most stock market investors are interested in returns seen over the past 50 years. While past performance does not guarantee future results, a review of this data can help investors know what they might expect for returns. Segmenting the return data by decades, we find that the Standard & Poor’s (S&P) 500 saw a total return of almost 17%. The 1960s, however, saw more nominal returns at just over 5 percent. The 1970s saw negative returns and then strong returns resumed in the 1980s and 1990s with 11.5 and 14.6 percent returns respectively. For the 200s, the return was again negative. The historical data indicates that to see a good return with relatively low risk, a 12-15 year investment timeframe is required. While returns may be low at the beginning, they tend to rise over time.
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The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.
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