What Is the Average Stock Market Return?

The stock market typically delivers an average annual return of around 10%, as indicated by the S&P 500 index. However, this return is diminished by inflation, which usually reduces purchasing power by 2% to 3% each year.

Investing in the stock market is most beneficial when you commit to long-term investments—funds you won't need for at least five years. For shorter time horizons, it's better to choose low-risk alternatives, like a high-yield online savings account, where you can expect a lower return in exchange for increased security.

What to expect the stock market to return

While there are no guarantees in the stock market, the 10% long-term average return has remained surprisingly consistent over time.

It largely depends on recent market trends. A simple guideline is: the higher the recent returns, the lower the future returns, and vice versa. As a general estimate, consider using an average annual return of 6% when planning for long-term stock market investments, keeping in mind that there will be both good years and bad years. You can use tools like NerdWallet's investment calculator to visualize what 6% growth would look like for your specific investment amount.

Although the long-term average stock market return is 10%, individual yearly returns are rarely close to that figure. Between 1926 and 2024, returns fell within the "average" range of 8% to 12% only eight times. Most years, returns were either significantly lower or, more often, much higher.

Despite market volatility, returns are typically positive in any given year. While the market doesn’t rise every year, historically, it has increased in just over 70% of years.

Tips when trading in stock market

1. Curb your excitement during good times. While it's great to see your stock investments grow, remember that after a period of high returns, the future is likely to be less favorable. Investors often need to relearn this during every bull market cycle.

2. Embrace optimism in tough times. When the market is down, it’s an opportunity. Stocks are essentially on sale, offering the chance to buy at lower prices and enjoy potentially higher returns in the future.

3. Achieve average returns by buying and holding. Frequent trading usually leads to lower returns, as commissions, taxes, and poorly timed decisions can erode your gains. Research consistently shows that even professional investors struggle to outperform the market. Rebalancing your portfolio occasionally—by selling investments that have outperformed and buying those that have underperformed—helps maintain your target allocation. But beyond that, it's best to leave your investments alone.

When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.

Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.