Stock Market Performance: Current and Historical
When considering a decision to invest in the stock market, many people want to know what kind of performance they will be getting. This is only natural, as nobody wants to place their hard earned cash in the hands of a market that won’t be offering them a favorable return. With the poor returns of the market in recent years, people are beginning to lose faith in the market, with many seeing it as little more than a gamble. People are pulling money out of the market, and looking to safer places to put there money. Given some of the losses seen recently, one can certainly empathize with their viewpoint.
However, let’s put some perspective on this thing. Take yourself back to 1999. The height of the tech craze. People couldn’t get enough of the market. Outmoded concepts like “profit” and “work” seemed to be going the way of the Dodo as people examined their soaring portfolios. Everyone in the market felt like a stock picking genius. One simply had to buy some stocks, and wait for their imminent retirement. The performance of the stock market
Basically, the lesson here is that the stock market is volatile. Sometimes, it goes up, other times, its down. In the cases of major bubbles or recessions, it can go very far up or very far down. However, the question serious investors would like to answer is what the overall performance of the market has been. Fortunately enough, that is a question that can be answered fairly easily. But first, an essential disclaimer…
Past Performance Is Not An Indicator Of Future Results
Yep, we’ve all heard it before, but it bears repeating. We can get the best researched stats out there and analyze them until we’re blue in the face, but that isn’t going to help us at all when it comes to predicting the future performance of the stock market. We can use past performance to make generalizations on financial topics, but using them as hard and fast rules will probably lead to disappointment. This is why good investors hold a diverse portfolio, something I will certainly be discussing in a later post.
Historical Performance
With that being said, what was the historical performance of the stock market been? Well, this isn’t easy to calculate. To get an average return over time, we have to define beginning and ending points. Even more importantly, we have to define which market is being used. For the sake of simplicity, let’s just consider the US stock market since it’s inception to the present time. Even this doesn’t get us all the way there, since methods of calculating return vary widely. There isn’t any one method. There is also the question of which stocks constitute “the market” and how they should be weighted. It’s not an easy task.
All of this being said, though, the general consensus is that the US stock market has a historical average return of about 10% per year. Now, if I haven’t made this clear enough already, this does not mean that you will be getting 10% every single year. Far from it. Throughout this time period, there have been upswings and downswings, all over the place. Check out this chart:
Source: Daily Kos
Note that the market (tracked from 1825 in this case) has been all over the place in terms of year to year returns. However, they do center around an average of 10%, which gives us this oft cited figure. Never forget about the volatility though. Or the fact these these past returns may have no bearing on future results. The US was experiencing amazing rates of growth during these past periods, and nobody can say how they will hold up in the future. Buyer beware.
Conclusions
So, now you have the basic piece of information you came here to find (hopefully). The US stock market has tended to return about 10% annually when average out over the whole period. This is a good rate of return. Those looking to get rich quick won’t be satisfied with this number, but for a regular long term investor, ten percent is quite a nice return. If you can beat the market, you can do even better, but whether that is possible or not is a subject for another post. For now, though, please leave any comments you might have concerning this return information. Thanks for stopping by.
Tags: annual returns, Stock Market, stock market performance