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 10% the next day. You never really know how it will swing. The 7% Average stock market return is based on long-term returns.
In this article, we will 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 stock market return of 10% over the past 140 years. The average stock market return for the S&P 500 Index in the last 10 years has been about 13.6%. Although the S&P 500 Index has been the gold standard when it comes to stock market returns, it will also depend on the index and timeframe.
| 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 | 32.39% |
| 2014 | 13.69% |
| 2015 | 1.38% |
| 2016 | 11.96% |
| 2017 | 21.83% |
| 2018 | -4.38% |
| 2019 | 31.49% |
| 2020 | 18.4% |
Where does the 7% market return average come from?
According to research, Warren Buffett was the one who claimed that investors should expect an average of 7% annual return in the stock market in the long term. This accounts for any kinds of volatility that may occur year-over-year.
According to Warren Buffett’s, GDP he’s expected to grow at an annual rate of 3% over the long-term. Inflation is also expected to grow 2% year over year. Stocks are also expected to rise at that rate and dividend payments will boost the annual average return to 6 to 7% over the long-term.
If you look at the S&P 500 Average stock market return, you will notice that some years are very good and some not very bad. The only way you can fully realize the average 7% Market return is if you ride the waves and invest for the long-term.
How to start investing
If you’re thinking about a retirement or just investing your money, then starting today is always better than starting tomorrow. You can never be time in the market. The longer you wait to start investing, the less you learn in the long-term. That has been proven time and time again.
Robinhood is a fantastic online stock broker tailored to beginners And Veterans alike. They pioneered $0 trading fees and I personally use them. If you’re interested in investing in cryptocurrencies, they also provide that for free! Super easy-to-use and I highly recommend it.
Final thoughts
To close this off, a good rule of thumb is to expect an average of 7% 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 that claim to have the secret oh, but the truth is nobody does.
The only way to guarantee returns is to invest now and to stay invested for the long term. When it comes time to retire or withdraw your funds, if you have been in the market for long enough, you will beat every single day trader out there. Historically that has been true, and I expect nothing less for the future.
Happy trading! 🙂
