The stock market, based on the S&P 500, has more positive years than negative years, but investors must weigh potential returns and risks. The average return on the stock market has been around 10% per annum for almost a century. The S&P 500 is often considered the reference measure for annual stock market performance. Although 10% is the average return on the stock market, returns for any year are far from the average.
Diversification and rebalancing strategies do not guarantee profits or protect against losses in declining markets. So, even if you selected the worst day of the year to invest, someone who has continued to invest in the market for the past 20 years would have gained. NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell stocks, securities, or other particular investments. In addition to showing average returns, the table above also shows useful information on inflation-adjusted stock returns. Past market performance can serve as a guide, and the longer the range that is being forecast, the more likely the market is to follow similar trends.
This is where the one-year average is only useful to lay the foundation for stocks to be good long-term investments. Rather than trying to predict highs and lows, it's important to maintain investment throughout a full market cycle. Either way, it's important to remember that market setbacks are not uncommon and occur in most years. In addition, financial markets have historically experienced a significant decline at some point during most years, while still offering positive returns throughout the year. When a market is experiencing volatility or a period of negative returns, you may hear the media talk a lot about market corrections and bear markets.
On stock exchanges, the S&P 500 represents approximately 80% of the total value of the stock market alone, making it a useful indicator of the performance of the stock market as a whole. Years of market decline have an impact, but the extent to which they affect you often depends on whether you decide to continue investing or exit. Negative stock yields occur, but historical data show that positive years far outweigh negative years. It's important for investors to understand that investing in stocks carries risk and that there will be times when their investments will experience losses. However, with proper diversification and risk management strategies in place, investors can still benefit from long-term gains in the stock market.