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.
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.