The Historical Rate of Return for the Stock Market

The stock market rises or falls each day, but it has performed well over the long term.
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Since the first shares traded on the Amsterdam Stock Exchange in 1602, investors have used the stock market to gain wealth by participating in the long-term rise of stocks. However, stocks don't rise every year. During some periods the market has remained depressed, potentially losing investors large sums of money. By knowing the stock market's performance over various periods, you can learn more about the potential rewards that await you during prosperous times and the risks you face when the market declines.

Gauging Performance

Stock market indexes track an assortment of stocks, providing you with a gauge of how the market as a whole performs. The two most common stock market indexes are the Dow Jones Industrial Average and the Standard and Poor's 500. The Dow was introduced in 1896 by Charles H. Dow, and tracked the performance of 30 U.S. industrial stocks. Today, the index tracks a wide assortment of companies from different industries, but it still seeks to represent how the stock market is performing overall. The S&P 500 was introduced in 1957 and tracks 500 of the largest U.S. companies.


From 1900 through 2011, the Dow's average return was 9.4 percent per year. In all, 4.8 percent of the total return is accounted for by price appreciation and 4.6 percent came from dividends paid out by the companies the index tracks. These figures are adjusted for inflation to more accurately represent actual returns. With no inflation adjustment, the Dow has increased an average of 8.4 percent per year since 1900, ending at 12,217.56 in 2011. Add dividends and the non-inflation-adjusted return is 13 percent per year.

S&P 500

Often called the lost decade, if you invested in stocks as the market was peaking in early 2000, your portfolio was likely still showing a loss at the end of 2011. According to, the S&P 500 peaked at 1,552.87 in 2000. This level was briefly eclipsed in 2007 when the index reached 1,576.09. The index closed out 2011 at 1,262.60 -- 20 percent below the 2008 high and 19 percent below the 2000 high. This period highlights that even though the stock market has risen over the long term, periods exist when it is difficult for investors to make money.

Best Years

The Dow has seen spectacular performance in some years. Catch a few years like these, and lock in the profit, and you'll be laughing all the way to the bank. For example, 1933 saw a 66.69 percent rise -- the largest percentage jump in the history of the index. Also, 1904, 1908, 1928 and 1954 had increases of more than 40 percent. In 1995, the index soared 33.45 percent.

Worst Years

With big gains, come great falls. In 1931, the Dow fell 52.67 percent, erasing more than half of its value. In 1907, 1920, 1930 and 1937, the index lost more than 32 percent. In 2008, during the global financial and housing crisis, it lost 33.84 percent.

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