Is The Stock Market Average Return Really 7%?
If you're at all interested in investing, you've definitely come across the 7% average stock market return. The question is — how true is that, really? Let's look at the actual history.
If you are at all interested in investing, then you have definitely come across the 7% average stock market return. The question is, how true is that? All the YouTube gurus, bloggers, and hundreds of articles out there swear by the 7% average return. But where did that 7% stock market average return come from?
The stock market in general is very volatile. One day it might go up well over 10%, and drop just as hard the next. You never really know how it will swing in the short term. The 7% average stock market return is based on long-term, inflation-adjusted returns — and that distinction matters a lot, as we’ll see.
In this article, we’ll go over this average return and see just how accurate it is, based on historical returns.
What is the average stock market return?
The S&P 500 Index has had an average nominal return of about 10% per year over the past ~140 years. Over the most recent decade it’s run even hotter — closer to 13% a year. But “average” hides a wild ride: the index almost never actually returns its average in any given year. It’s big up years, the occasional brutal down year, and a long-term line that climbs in spite of all of it.
Here’s the year-by-year total return for the S&P 500 since 2000, so you can see just how lumpy “average” really is:
| Year | S&P 500 Index Return |
|---|---|
| 2000 | -9.1% |
| 2001 | -11.9% |
| 2002 | -22.1% |
| 2003 | 28.7% |
| 2004 | 10.9% |
| 2005 | 4.9% |
| 2006 | 15.8% |
| 2007 | 5.5% |
| 2008 | -37% |
| 2009 | 26.5% |
| 2010 | 15.1% |
| 2011 | 2.1% |
| 2012 | 16% |
| 2013 | 32.4% |
| 2014 | 13.7% |
| 2015 | 1.4% |
| 2016 | 12% |
| 2017 | 21.8% |
| 2018 | -4.4% |
| 2019 | 31.5% |
| 2020 | 18.4% |
| 2021 | 28.7% |
| 2022 | -18.1% |
| 2023 | 26.3% |
| 2024 | 25% |
Look at 2008 (-37%) sitting right next to 2009 (+26.5%), or the -18% in 2022 followed by two big recovery years. Not a single one of those is “about 10%.” That’s the whole point: the average only shows up if you stay invested through every one of those years, the ugly ones included. You can watch where the index sits right now on the live money dashboard.
Where does the 7% market return average come from?
So if the market has averaged ~10% nominally, where does 7% come from? Inflation. The 7% figure is roughly the real (inflation-adjusted) return — what your money actually gains in buying power after prices rise. Take the ~10% nominal return, subtract the long-run ~3% inflation rate, and you land right around 7%.
This is why inflation isn’t just a side note for investors — it’s the difference between the headline return and the return that actually grows your wealth. You can see exactly how much inflation has eroded a dollar over any stretch with our inflation calculator. The lesson holds either way: some years are very good and some are not so good, and the only way you fully realize that long-run average is to ride the waves and invest for the long term.
How to start investing
If you’re thinking about retirement or just investing your money, then starting today is always better than starting tomorrow. You can’t time the market — and the longer you wait to start investing, the less you earn in the long term. That has been proven time and time again, because compounding rewards time in the market far more than clever timing.
For most people, the simplest winning move is a low-cost, broad-market index fund (one that tracks the S&P 500) inside a tax-advantaged account like a 401(k) or Roth IRA. No stock-picking, no guru required. If you’re wondering whether you’re on pace, start with how much you should have in your 401k and how much you actually need to retire. And if you want to balance stocks with something that historically moves differently, our metals desk tracks live gold and silver — a classic diversifier.
Final thoughts
To close this off, a good rule of thumb is to expect an average of around 7% real (after-inflation) stock market return in the long run. No one — and I mean no one — can predict the future when it comes to the stock market. There are countless gurus out there who claim to have the secret, but the truth is nobody does.
The only way to capture those returns is to invest now and stay invested for the long term. When it comes time to retire or withdraw your funds, if you’ve been in the market long enough, you’ll beat almost every day trader out there. Historically that has been true, and I expect nothing less going forward.
Happy investing! :)
