What Is the Average Stock Market Rate of Return?

It is difficult to know how much to invest in stocks or how long you need to hold that investment. The truth is, historically, the stock market averages around a 10% rate of return, not considering inflation. But what does that mean for you? And is this a rate you can count on? Here we’ll outline the details of the stock market rate of return, how it corresponds with inflation, and how you can use the average rate of return to your advantage.

A financial advisor can build you a portfolio strategy that details investment options, asset allocations, time frames and more.

Stock Market Rate of Return Historically

First off, let’s clarify that when we’re talking about the stock market here, we’re specifically referring to the S&P 500. The S&P 500 is a stock market index that was started in 1926. It tracks the performance of the 500 largest publicly traded companies in the United States.

Since its founding, the S&P 500 has averaged right around 10% yearly return over time. However, this doesn’t mean that each year will match that. Remember, this is 10% yearly over time. So, a year like 2015, where the index saw a -2.97% slump, is counterbalanced by a year like 2021 where the market saw over 20% growth. ¹

In fact, if you look at just the  10 years of  2012 – 2021, the market has had a +12.63% yearly change including dividends. That means that if in 2013, you put $1,000 into an index fund that tracks the stock market rate of return, you would have $4,252.31, assuming you reinvested all dividends. That’s a 260.3% return on investment. ²

Stock Market Rate of Return When Compared to Inflation

Inflation is a huge factor to consider when looking at stock market returns. While the Federal Reserve works to keep inflation ideally at 2%, that varies from year to year. For instance, analysts expect the annual inflation rate in 2026 to be around 3-3.5%. ³ However, the average inflation has spiked since 2020 with the pandemic and has been slow to go back down to pre-pandemic levels.

With a 10% Rate of Return, When Will My Investment Double?

There’s a simple way to estimate how quickly your investment will double in the stock market: the rule of 72. With the rule of 72, you simply divide 72 by the annual rate of return and get the number of years it takes to double your investment.

72 / annual rate of return = years to double investment

So with our 10% rate of return, it will take 7.2 years to double the investment. Note: the effectiveness of the rule of 72 varies by how high or low the return rate is. Anything in the 6-10% range works well. But, as you go out of that range, it becomes less accurate.

Average Stock Market Return for the Last 5-30 Years

We’ve put together a table highlighting what the average stock market return has been over the past 30 years, within each 5-year increment. Here’s what it looks like.

Note: these stats are macrotrend aggregates and not intended to be used for stock trading. ⁴

The Average Stock Market Return Is Rarely Hit

When you look at the average stock market rate of return over the years, you’ll notice that individual years rarely fall in the average range. In fact, since the S&P 500 was started in 1926, only seven individual years fell in the 8-12% range. The stock market is a volatile place. Some years boom big, while others bust or fizzle out.

What’s important is the average. The market average stays positive over time because several years have hit above 20%. While you may not know when a big year’s coming, the 10% rate of return average is something many investors have come to rely on.

How to Ride the Market Wave

There will be good years and there will be bad years for the stock market. Once you’ve accepted that you will win and lose, you can plan how you will operate. Here are a few tips on how to adjust your mindset during market changes.

1. When the market’s up: You’re riding high and your portfolio value’s growing. Don’t expect it to last forever. What goes up must come down. You can use this time to make some trades. Just remember that the bull market doesn’t last forever.
2. When the market’s down: As the saying goes, buy the dip. If the market’s slowing, now’s not the time to sell your assets. Stick to a diverse portfolio and try to snatch up some under-valued assets in the low market.
3. Take advantage of the average: The only way you’re going to see the average stock market rate of return is by buying and holding assets for a long time. A buy-and-hold investment style invests in assets that will grow in value over time. This isn’t day trading — it’s holding an investment for 10, 20 or 30+ years.
4. Rebalance your portfolio when needed: Occasionally you will need to rebalance your portfolio. This will allow you to align your assets to your goals and your risk appetite. A rebalance will make sure you have the right asset allocation to fit your needs.

Other Factors to Consider Beyond Average Returns

Average return is only one way to evaluate an investment. Investors often look at several measures together because the same return can be achieved in very different ways. Considering how an investment grew, how much uncertainty it involved and whether the potential return matches the risk can provide a more complete basis for comparison.

Average Return vs. Compound Annual Growth Rate (CAGR)

Average annual return summarizes performance across individual years. CAGR answers a different question: if an investment grew at one consistent annual pace from its starting value to its ending value, what would that rate have been?

That distinction becomes more useful over longer holding periods. Investments with similar average annual returns may not produce the same ending value if their year-to-year performance differs. Looking at both measures can provide additional perspective when comparing long-term investment results.

Expected Return vs. Required Return

Every investment involves balancing potential reward against risk. Expected return reflects the return an investor believes an investment could generate in the future. Required rate of return is the minimum return an investor believes is sufficient to justify taking on that investment.

Comparing those two figures can help investors decide whether an opportunity is attractive. If the expected return does not appear high enough relative to the level of uncertainty involved, another investment may better fit an investor’s objectives.

Why Volatility Matters as Much as Returns

Return shows where an investment finished. Volatility helps explain what happened along the way by measuring how much an investment’s value changed over time.

For long-term investors, that difference can be meaningful. Two investments may produce similar returns over a decade while exposing investors to very different levels of market fluctuations. Looking at both return and volatility can provide a clearer picture of the tradeoff between growth potential and investment risk.

Bottom Line

The stock market rate of return averages 10% per year over time, but it rarely hits that every year. Some years go into the red, while others hit 20+%. Inflation factors in because it determines your buying power. Still, even with high years like 2022, the average inflation over time is around 2%. Those who benefit from the stock market average return are buy-and-hold investors who choose good-performing assets and/or invest in index funds that track the growth of the market. Long-held assets can take advantage of the compounding rate of return, growing wealth over time.

Tips for Investing

• Whether you’re new to investing or you know a few things, a financial advisor could help you create a financial plan for your needs and goals. 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.
• Learn how your money can grow over time with SmartAsset’s investment calculator. This helpful tool can let you plan out the future and predict a rate of return.

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