The Average Stock Market Rate of Return

The stock market rises and falls, but values have increased long-term.
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Ever since the New York Stock Exchange started operation in 1792 with 24 stockbrokers, Americans have been participating in the long-term rise of stocks. Although the path has often been bumpy, with many losing years, over the long run the stock market produces positive returns unmatched by other investments such as bonds or savings accounts. Knowing how the market acts from year to year, and on the average, helps you better understand the risks and rewards of investing in the stock market.

Dow Industrials

One of the easiest ways to monitor stock performance is to use an index. First introduced in 1896, the Dow Jones Industrial Average tracks the performance of 30 large U.S. corporations to represent the stock market as a whole. Originally the index contained only industrial stocks, but it now contains stocks from multiple industries, making it one of the most used and cited indexes for monitoring the U.S. stock market.

1900 to 2011

From 1900 through to the end of 2011, if you'd invested in the 30 stocks of the Dow your average yearly return would've been an estimated 9.4 percent. Only 4.8 percent of this total return came from stocks moving higher; the rest came from dividends paid to investors from the companies in the index.

Lost Decades

Over the long run stocks have performed well, but significant time can pass before you make a profit, or before you recoup losses from a prior market decline. According to the American Spectator, the Dow traded at 1,000 in 1966, but in July 1982 it hit a low of just below 800 -- a loss of more than 20 percent over 16 years.

More recently, it took until October of 2006 for the Dow to recover from its drop from a January 2000 high of 11,410 to less than 8,000.

Best and Worst Years

Averages are deceiving, as any given year can produce profits or losses drastically different than the average implies. For example, in 1933 and 1928 the Dow racked up returns of 66.69 percent and 48.22 percent -- the biggest single-year gains for the index. On the other hand, if you'd invested in 1931 or 1907, you wouldn't have been so happy. Those years saw declines of 52.67 percent and 37.73 percent.

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