When stock market volatility occurs in the US, some investors rush to pull out — as was the case in early 2022. However, the average stock market return may confuse even the most seasoned investors. The point is that you must rid yourself of doubt and overcome the hurdles as they come at you.
As an investor, what do you have to do to compute the US stock market’s return on investment in terms of averages? It predominantly depends on the computation duration and the index, which is used to reflect the US stock markets in a general way. In many typical cases, the index which may be chosen as a measurement of the average return on stocks in US markets, is the S&P 500. This, a good proxy, is a valuable measurement, but it has prevailed only since 1957. However, most experts are prone to use the data set forth by the economist Robert Shiller, a Nobel Prize winner, to gauge the S&P 500.
Since 1971, with the utilisation of data from Shiller, the S&P 500 has, without a pause, delivered gains of 7.5%, yearly returns. Average returns with reinvested dividends stand at 10.51%.
When any investor enters the market, the initial concern is the returns they may gain from the investment. In most cases, the estimated returns that investors seek will decide their investment choices in particular shares and stocks. Serious investors, as opposed to traders, buy stocks and hold them for the long haul. Investors who allocate their capital to the S&P 500 index enjoy a yearly stock market average return of 10%.
Does this mean that investors who invest for the long haul get an annualised 10% return every year that they remain invested? Not necessarily. The S&P 500 average return is just a predictor. In some years, stocks may be up, and in others, they may be down.
The average stock market return can, in all probability, let investors know how long it will take for any investment to double. Say an investor places $10,000 into an index fund of the S&P 500. If you are the investor, you will want to know how long it will take for the investment to turn into $20,000. A typical rule made use of is that of the Rule of 72. You will know how long your investment will take to become twice as much if you divide the return rate by 72. The 10% yearly return rate means an investor’s capital should double every 7.2 years. Hence, by the average stock market return, you can tell when your investment will become twice its amount.
According to the famed mathematician Aswath Damodaran from New York University, S&P 500 investments have been doubling approximately ten times, or every 7 years, on average, every time. It has taken place since 1949. So, why not use this information on average US stock returns? Start your foray into the US market with Fi Money. Zero withdrawal charges, no brokerage fee & no wallet needed — a secure & simple way for beginners to invest in the US stock market.
Approx 10%, i.e. for long-term investments. In fact, From 1900-2022, the S&P 500, aka 500 biggest American companies based on market cap, generated an avg yearly return of 10% (when all dividends were reinvested)!
Good stocks for the future are both growth stocks & value stocks. Stocks that belong to specific sectors may be good stocks for returns in the future, like those in the energy, IT & financial sectors.
US Stocks can give you a 10 percent return on investment if they are from “in-demand” sectors and held for long durations. You can find some good value stocks in the S&P 500 index, like Alphabet, CBRE Group, SVB Financial, etc. Growth stocks also give you good returns in the future.