What Is the S&P 500 Average Annual Return?

While the stock market’s performance can vary significantly from year to year, the S&P 500 annual rate of return has averaged around 10% since its inception in 1957. Index funds and exchange-traded funds (ETFs) that track the S&P 500 are among the largest and most popular in the world due to the its size, scope and history of strong average annual returns. To determine how investments in the S&P 500 might work in your portfolio, consider working with a financial advisor. 

What Is the S&P 500?

The S&P 500 is a stock index that measures the value of 500 of the largest companies traded on U.S. stock markets. It is generally considered to be the best benchmark of how the U.S. domestic market is performing. Even though most lay sources refer to the Dow Jones Industrial Average when they say something like “the market,” when investors refer to “the market” they are usually talking about the S&P 500.

While a form of this particular index has existed for nearly 100 years, the S&P 500 launched in earnest in 1957 when it expanded from 90 stocks to 500 companies. Today, the S&P 500 accounts for approximately 80% of the total stock market capitalization and is “widely regarded as the best single gauge of large-cap U.S. equities,” according to S&P Dow Jones Indices.

What Is an Average Annual Return?

The annual rate of return for an asset is how much it grew or shrunk over one year, taking into account all profits and losses. It is the difference, expressed as a percentage, between the asset’s value at the beginning of the year and at the end.

The average annual rate of return of an asset is the annual rate of return the asset has delivered over its lifetime, averaged out. For example, say a stock has existed for three years. In the first year, it grew by 10%. By the second it shrank by 5%. Finally, in the third year, it grew by 20%. The average annual rate of return would be (10 + -5 + 20) / 3 = 8.3. This stock has an average annual rate of return of 8.3%.

What Is the S&P 500 Average Annual Return?

While the index officially launched in March 1957, its roots trace back to the 1920s when its forerunner comprised just 90 stocks. As a result, the S&P 500 annual rate of return will vary depending on whether you wish to measure its performance since it expanded to 500 companies or earlier.

From March 1957 through March 2024, the S&P 500 averaged approximately 10.5% per year, with dividends reinvested, according to DQYDJ’s S&P 500 Return Calculator. However, that certainly doesn’t mean you’re guaranteed to achieve a 10-plus-percentage point increase each year.

The S&P 500 tends to have highly variable values from year to year. In 2022, for example, the market posted a -18.11% total return only to bounce back in a big way in 2023 when it recorded a 26.29% total return (again, this means dividends are reinvested). Keep in mind that the S&P 500 average annual return is the sum total of the index’s highs and lows – it’s a simple average. Nothing about it is weighted.

It is particularly important when reviewing the S&P 500’s performance to remember that each year is assessed relative to the last. This means that showing growth and losses as percentages can, at times, create an impression that the market is stronger or weaker than it actually is.

Why Does the Average Return Matter?

This matters for two reasons. First, this average rate of return lets you compare investing in an S&P 500 index fund against other potential investments. You can consider how alternatives stack up against this rate of return, particularly given its consistency.

Second, it’s important to understand that this will reflect only your gains over the long term. On an annual basis, the S&P 500 tends to swing widely. It is in fact very rare for the index to ever come close to its S&P 500 average annual return; in most years it is significantly different.

How Inflation Impacts S&P 500 Annual Returns

Keep in mind that the S&P 500’s average annual return does not account for inflation. Since the purchasing power of money decreases as the price of goods and services rise each year, money that’s invested in the stock market must grow at a rate greater than inflation to grow in value.

For example, if a stock posts a 6% return one year but inflation is 3%, the money that’s invested in the stock really only increased in value by 3%.

While the S&P 500 annually had an average rate of return of around 10.5% between March 1957 and March 2024, that average is significantly lower after adjusting for inflation – around 6.6%. In other words, the S&P 500 grows by an average of 6.6% each year after inflation.

Recent Rates of Return

Measuring the S&P 500’s average rate of return since 1957 can provide historical context and insight into how the market has performed over the long haul. However, investors may find more value in evaluating the stock market’s performance in recent years and decades.

Here’s a look at the S&P 500 annual returns since 2000:

Bottom Line

Since 1957, the S&P 500’s average annual rate of return has been approximately 10.5% (through March 2023) and around 6.6% after adjusting for inflation. The index, which comprises 500 large companies listed on U.S. stock exchanges, serves as a benchmark of the large-cap equity market, and to some extent, the economy as a whole.

Tips for Investing

• If you’re wondering whether or not the S&P 500’s returns would be a good blueprint for your portfolio, consider talking to a financial advisor. Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• The S&P 500 can’t tell you what your investment risk tolerance is. It won’t let you know how much tax and inflation can take out of your investment. If you have questions about any of the above, or how much your investment will grow over time, SmartAsset’s investing guide can offer some answers.
• If taxes are a concern for you, there are investments and assets that can generate tax-free returns or minimally-taxed returns. Municipal bonds, tax-exempt mutual funds and ETFs, as well as indexed universal life insurance are several options you may want to consider.

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