What Is the S&P 500 Average Annual Return?

While the stock market’s performance can vary significantly from year to year, the S&P 500 annual rate of return has averaged around 10% since its inception in 1957. Index funds and exchange-traded funds (ETFs) that track the S&P 500 are among the largest and most popular in the world due to the its size, scope and history of strong average annual returns. To determine how investments in the S&P 500 might work in your portfolio, consider working with a financial advisor. 

What Is the S&P 500?

The S&P 500 is a stock index that measures the value of 500 of the largest companies traded on U.S. stock markets. It is generally considered to be the best benchmark of how the U.S. domestic market is performing. Even though most lay sources refer to the Dow Jones Industrial Average when they say something like “the market,” when investors refer to “the market,” they’re usually talking about the S&P 500.

While a form of this particular index has existed for nearly 100 years, the S&P 500 launched in earnest in 1957 when it expanded from 90 stocks to 500 companies. Today, the S&P 500 accounts for approximately 80% of the total stock market capitalization and is “widely regarded as the best single gauge of large-cap U.S. equities,” according to S&P Dow Jones Indices.

Investors often use the S&P 500 to gauge market trends and evaluate portfolio performance. Many mutual funds and exchange-traded funds are designed to mirror the index, giving investors a simple way to gain diversified exposure to large-cap U.S. stocks. Financial professionals also frequently compare actively managed portfolios against the S&P 500 to measure investment results over time.

What Is an Average Annual Return?

An average annual return measures how much an investment has gained or lost each year over a specific period of time. Investors often use this figure to evaluate long-term performance and compare investments such as stocks, mutual funds or indexes like the S&P 500. The calculation provides a simplified snapshot of historical growth, although actual yearly returns may vary significantly from one year to the next.

There are different ways to calculate average annual return, and the method matters. The arithmetic average adds together yearly returns and divides by the number of years, which can sometimes overstate long-term performance. Compound annual growth rate (CAGR), on the other hand, accounts for the effects of compounding and often gives a more realistic picture of how an investment actually grew over time.

Average annual return does not reflect the ups and downs an investment experiences along the way. For example, the S&P 500 may average around 10% annually over several decades, but individual years can produce sharp gains or steep losses. Investors who focus only on the average may underestimate the role volatility plays in long-term investing outcomes.

Investors often use average annual returns to estimate future portfolio growth and guide retirement planning decisions. Financial advisors may apply historical market averages when projecting how savings could grow over time under different scenarios. However, past performance does not guarantee future results, and market conditions can shift unexpectedly.

What Is the S&P 500 Average Annual Return?

While the index officially launched in March 1957, its roots trace back to the 1920s when its forerunner comprised just 90 stocks. As a result, the S&P 500 annual rate of return will vary depending on whether you wish to measure its performance since it expanded to 500 companies or earlier.

From April 1957 through April 2025, the S&P 500 averaged approximately 10.4% per year, with dividends reinvested, according to DQYDJ’s S&P 500 Return Calculator. However, that certainly doesn’t mean you’re guaranteed to achieve a 10-plus-percentage point increase each year.

The S&P 500 tends to have highly variable values from year to year. Back in 2022, for example, the market posted a -18.11% total return only to bounce back in a big way in 2023 when it recorded a 26.29% total return (again, this means dividends are reinvested). Keep in mind that the S&P 500 average annual return is the sum total of the index’s highs and lows – it’s a simple average. Nothing about it is weighted.

It is particularly important when reviewing the S&P 500’s performance to remember that each year is assessed relative to the last. This means that showing growth and losses as percentages can, at times, create an impression that the market is stronger or weaker than it actually is.

Why Does the Average Return Matter?

This matters for two reasons. First, this average rate of return lets you compare investing in an S&P 500 index fund against other potential investments. You can consider how alternatives stack up against this rate of return, particularly given its consistency.

Second, it’s important to understand that this will reflect only your gains over the long term. On an annual basis, the S&P 500 tends to swing widely. It is in fact very rare for the index to ever come close to its S&P 500 average annual return; in most years it is significantly different.

How Inflation Impacts S&P 500 Annual Returns

Keep in mind that the S&P 500’s average annual return does not account for inflation. Since the purchasing power of money decreases as the price of goods and services rise each year, money that’s invested in the stock market must grow at a rate greater than inflation to grow in value.

For example, if a stock posts a 6% return one year but inflation is 3%, the money that’s invested in the stock really only increased in value by 3%.

While the S&P 500 annually had an average rate of return of around 10.4% between April 1957 and April 2025, that average is significantly lower after adjusting for inflation – around 6.5%. In other words, the S&P 500 grows by an average of 6.5% each year after inflation.

Recent Rates of Return

Measuring the S&P 500’s average rate of return since 1957 can provide historical context and insight into how the market has performed over the long haul. However, investors may find more value in evaluating the stock market’s performance in recent years and decades.

Here’s a look at the S&P 500 annual returns since 2000:

What a 10% Historical Return Could Mean for Your Portfolio

A long-term average can provide context for past market performance, but it doesn’t represent what an investor earns every year. Returns can fluctuate considerably, making the growth rate used in a financial projection an important assumption.

Consider $100,000 invested for 30 years with no additional contributions or withdrawals. At a hypothetical 5% annual return, it would grow to about $432,000. At 7%, it would reach roughly $761,000. At 10%, it would approach $1.74 million.

Compounding makes relatively small differences in assumed returns increasingly significant over longer periods. In this example, using 10% instead of 7% produces a projected balance that is more than twice as large after 30 years.

Actual investment results can also be affected by fees, taxes and inflation. The timing of gains and losses matters as well, particularly when an investor is withdrawing money. A substantial decline early in retirement, for example, could leave fewer assets available to participate in a subsequent market recovery.

Rather than treating the S&P 500’s historical average as an expected annual result, investors can use several hypothetical return assumptions when estimating future portfolio values. Comparing different outcomes can show how dependent a financial plan may be on market performance and how changes in savings or spending could affect the projection.

Bottom Line

The S&P 500’s average annual return is often used as a benchmark for long-term investing, but the number alone does not show how an investment may perform from year to year. Different calculation methods, market volatility and compounding can affect how historical returns are interpreted. Considering those factors alongside risk tolerance, diversification and financial goals can provide a more complete picture when planning for long-term growth.

“The historical average return can serve as an estimate for planning expectations, but it’s important to understand what the average really represents and how periodic returns can fluctuate significantly,” said Brandon Renfro, CFP®.

Brandon Renfro, CFP®, RICP, EA provided the quote used in this article. Please note that Brandon is not a participant in SmartAsset AMP, is not an employee of SmartAsset and has been compensated. The opinion voiced in the quote is for general information only and is not intended to provide specific advice or recommendations.

Tips for Investing

• If you’re wondering whether or not the S&P 500’s returns would be a good blueprint for your portfolio, consider talking to a financial advisor. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• The S&P 500 can’t tell you what your investment risk tolerance is. It won’t let you know how much tax and inflation can take out of your investment. If you have questions about any of the above, or how much your investment will grow over time, SmartAsset’s investing guide can offer some answers.
• If taxes are a concern for you, there are investments and assets that can generate tax-free returns or minimally-taxed returns. Municipal bonds, tax-exempt mutual funds and ETFs, as well as indexed universal life insurance are several options you may want to consider.

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