What Return Should You Actually Expect From the Stock Market?
You've probably heard that the stock market returns about 10% a year on average. That number comes from the S&P 500's long-run performance and it's not wrong — but used carelessly, it can make a retirement or savings plan look rosier than it should. Two things get lost in that single number: inflation, and how wildly returns actually swing from year to year.
The historical average, two ways
| Measure | Long-run average annual return |
|---|---|
| Nominal return (before inflation) | ~10% |
| Real return (after inflation) | ~6–7% |
The nominal figure is what shows up in most headlines. The real figure is what actually matters for your purchasing power — it tells you how much your money grew after accounting for rising prices. Since inflation has historically averaged a bit over 3% a year, the gap between nominal and real return is not a rounding error.
Why the average hides a lot of swings
"10% a year on average" doesn't mean 10% every year. Some illustrative examples from the S&P 500's actual annual total returns:
| Year | Approximate annual return |
|---|---|
| 2008 | −37% |
| 2013 | +32% |
| 2019 | +31% |
| 2022 | −18% |
The average smooths all of this into one tidy number, but only over long stretches of time. Over a single year, or even five years, actual results can look nothing like the long-run average — which is exactly why time horizon matters so much when you're investing in stocks versus something more stable.
What number should you actually plug into a calculator?
Because of both inflation and year-to-year variance, many financial planners deliberately use a more conservative assumption than the historical 10% nominal average — often somewhere around 6–7% (if working in "real," inflation-adjusted terms) or 8–9% (if working in nominal terms and separately accounting for inflation elsewhere in the plan). Using a lower, more conservative number doesn't mean you expect the market to underperform — it builds in a margin of safety so an unlucky stretch of down years doesn't wreck the plan.
The takeaway
The "10% average" isn't a myth, but it's a long-run, pre-inflation figure that includes some genuinely brutal years along the way. For long-term goals like retirement, a lower, inflation-adjusted assumption gives you a more honest picture of what your money is likely to be worth when you actually need it.
What these returns mean in dollars
A few percentage points sound small, but over decades they add up. Here is what $10,000 left alone for 30 years grows to at different average annual returns (calculated, before taxes and fees):
| Average annual return | $10,000 after 30 years |
|---|---|
| 6% | $57,435 |
| 7% | $76,123 |
| 8% | $100,627 |
| 10% | $174,494 |
The 10% result looks far better than the 7% result, but it is in future dollars. If prices rise about 3% a year, the $174,494 has the buying power of roughly $71,900 in today's money, which is close to the 7% "real" result. That is why many planners use the lower number.
Monthly investing example
Investing $500 a month for 30 years means you put in $180,000. Here is roughly what it could grow to at different returns (calculated, not guaranteed):
| Average annual return | Value after 30 years |
|---|---|
| 6% | about $502,000 |
| 7% | about $610,000 |
| 8% | about $745,000 |
| 10% | about $1,130,000 |
Going from an assumed 7% to 10% adds about half a million dollars on paper. That shows how sensitive a long-term plan is to this one assumption, and why a lower figure keeps you from planning around a result you may not get.
Why big losses are harder to recover from
A drop takes a larger gain to win back. After a 37% loss like 2008, the portfolio needs a gain of about 59% just to get back to even. After an 18% loss like 2022, it needs about 22%. This is one reason stocks suit long time horizons: money you will need within a few years can be hurt by a bad year before it has time to recover.
Fees and taxes also reduce returns
The historical averages above are for the index itself, before any costs. A fund that charges 1% a year turns a 7% return into 6% for you. On the $10,000 example, that is $57,435 instead of $76,123 after 30 years, a difference of about $18,700. Taxes on dividends and gains can reduce it further in taxable accounts. This is why many people favor low-cost index funds, and why retirement accounts like a 401(k) or IRA can help. See our Roth vs. Traditional IRA guide for how those accounts are taxed.
Common mistakes with return assumptions
- Using 10% for everything. It is a long-run nominal average, not a promise for any single year or decade.
- Forgetting inflation. Your future dollars will buy less, so check whether your calculator shows real or nominal results.
- Ignoring fees. A small yearly fee compounds into a large cost over decades.
- Investing money you need soon. Short-term goals usually belong in more stable places than stocks.
- Judging by one year. A single year, good or bad, says little about the long-run average.
Sources and further reading
For independent, authoritative information on this topic, these are good places to start:
- NYU Stern (Aswath Damodaran): Historical returns on stocks, bonds and bills — a widely cited year-by-year dataset going back to 1928.
- Investor.gov (SEC): Stocks — what stocks are, how they pay returns, and the risks involved.
- Investor.gov (SEC): Asset allocation and diversification — how spreading money across asset types affects risk and return.
This article is general information, not investment advice. Past performance does not guarantee future results, and all investing involves risk, including the potential loss of principal — consult a licensed financial advisor for guidance specific to your situation.