Note: This post was last updated on February 28th, 2024 to include refreshed U.S. stock market returns up until the end of 2023. The U.S. stock market returned +22.1% in 2023 đ¸
From Canada to Chile, Barcelona to Bali â investors around the globe pay close attention to the U.S. stock market. With the U.S. generating ~25% of global GDP, and U.S. companies weighing in at ~60% of global stock markets, the long-term performance of all of our investments is heavily influenced by the performance of the U.S. market.
This post will cover a few facts and figures on the history of U.S. stock market returns:
Understanding historical stock market returns can help to inform your financial plans, from planning for retirement, or figuring out whether it makes more sense to rent or buy your home. Plus, itâs plenty of fun for data geeks đ§
Throughout this post weâll be relying on a fantastic data set released and maintained by Professor Robert Shiller, giving us data on U.S. stock market returns all the way back to the 1870s â a data set covering more than 150 years.
Onto the good stuff!
Â
What is the average annual return of the U.S. stock market?
This showcases why many financial planners tend to assume returns of 5% to 8% per year in the stock market.
Note: these figures are âreal total returnsâ, meaning that theyâve been adjusted to include the re-investment of dividends, and have also been adjusted for inflation.
Â
How often does the stock market go down?
Â
The wild swings of the market are reduced if we start to look at time horizons that are longer than a single year.
In the animation below, you can see how U.S. stock market returns have fared when we look at 1 / 5 / 10 / 20 year rolling periods.
Â
And down below youâll find the same chart, but this time shown as a static picture.
To summarize: while the range of returns across 1-year periods has varied significantly (from negative 37.0% to +53.2%), the annualized returns across 20-year periods have a much tighter range (from +0.5% to +13.2%).
In the long run, U.S. stocks have delivered strong returns. However, if your investment horizon is short (0-5 years), your savings are likely better suited towards less volatile assets such as bonds, GICs, or high interest savings accounts.
Â
Across the entire period spanning 1871 until 2023, U.S. stocks have increased at +4.7% per year excluding dividends, +9.2% per year including dividends, and +6.9% per year including dividends and also adjusting for inflation.
Â
The table below lists the 20 months on record with the highest returns, and the 20 months with the lowest returns (without adjusting for dividends or inflation).
A familiar story: in the short-term, the stock market is far from predictable.
The best month in stock market history was August 1932, when the market gained 50.3% in a single month!
On the other hand, the worst month in stock market history was November 1929, with a decline of 26.5%. The worst month in recent memory was October 2008 (during the depths of the Great Recession), when the stock market dropped by 16.9%.
Â
If you had invested $1,000 in the U.S. stock market on Dec. 31st, 1969 and held the investment until Dec. 31, 2023 (without buying or selling during that 54-year period), your investment would have grown to ~$230k before inflation, or ~$28k after adjusting for inflation.
Historically, buying and holding (and potentially forgeting about the investment entirely) has been a simple and straightforward way to build wealth.
Â
If youâre looking to make a quick buck by jumping in and out of the market, quite often youâll find yourself on the losing end of things. Over short time periods, thereâs no telling if the market will go up, down, or sideways.
However, if you have the patience and fortitude to hold onto your investments for 10 or 20+ years, your prospects become much brighter. Youâll ride out the short-term noise and benefit from the long-term upwards trend đ.
As always, Warren Buffet put it best: âthe stock market is a device for transferring money from the impatient to the patientâ.
That being said! If youâd like to try your hand at beating the performance of a simple buy-and-hold strategy, I invite you to play this simple market timing simulator game.
Â
***
For the data-heads, click here to download an excel file which contains all of the underlying data on U.S. stock market returns, along with the charts shown in this post.
Data sources:
Robert Shiller U.S. stock market data
Yahoo finance S&P 500 historical data
FRED U.S. CPI (inflation) data
Note: for the purposes of this post, the âU.S. stock marketâ refers to the S&P Composite index from 1871 to 1957, and the S&P 500 index from 1957 until today, which is aligned with the definition used by Professor Shiller.
Â
View Comments