Financial Planning Fridays #141: Not So Average Returns
The S&P 500's long-term average annual return is often cited near 11%, but individual years rarely land near that number. This video reviews yearly returns from 1950 through 2024, showing that most years were well above or well below the average, and explains why that volatility supports staying invested through declines.
The S&P 500's long-term average annual return is often cited near 11%, but individual years rarely land near that number. This video reviews yearly returns from 1950 through 2024, showing that most years were well above or well below the average, and explains why that volatility supports staying invested through declines.
Key takeaways
- The S&P 500's average annual return from 1950 through 2024 was about 11%, but few individual years landed close to that figure.
- About 75% of the years in this period were positive, with the best year up about 45% and the worst year down almost 39%, in 2008.
- Full-year returns have historically clustered well above or well below the long-term average rather than near it.
- Because strong up years have historically followed declines, maintaining a consistent investment strategy through temporary drops is emphasized, though past performance does not guarantee future results.
Hi friends, we talk all the time about the great average annual returns that stocks have provided over time. However, looking back, we have rarely received anywhere close to the average return in any specific year. This great chart shows the total return of the S&P 500 by year from 1950 through 2024.
The average return during that time was about 11% per year. About 75% of the years were positive, with the best year ever at a 45% gain. Conversely, the worst year was down almost 39%, in 2008, which I remember well. Only seven of the past 75 years have had returns between 5% and 11%. All of the other full-year returns were outside of this range.
What we typically have seen has been a larger gain in any given year instead, with a negative year about 25% of the time. In the average positive year, the market was up almost 18%. This is another great reason why it is so important to stick to your investment strategy during any temporary decline. History shows that it likely won't be long until the next big up year, which will more than make up for it. Thank you, and I look forward to talking with you next Friday morning.
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