The Stock Market’s Average Return Is Far From "Average"

A 10% return is more rare than you might think.

Some of you probably know that the average return for the U.S. stock market historically has been around 10%.

But did you know that that average return is actually extremely rare?

Here is a fascinating chart from Ben Carlson of A Wealth of Common Sense.

Take a look at the distribution of stock market returns from 1926 to 2020. Annual returns are all over the place, but the majority of years fell into the 10% to 20% return bucket.

Carlson broke things down even further. He looked to see how many years the stock market had a return within two percent of the long-term average 10% return— or in other words, a return of 8% to 12%.

Believe it or not, only FIVE YEARS had returns in that range. Five years out of 95 years of history!

Look at the chart again. You can see that there were also five years in which the market rose by more than 40%— which means that the market went up 8% to 12% the same number of times as it went up more than 40%.

That’s crazy isn’t it?

The takeaway is that even though 10% is the average return for the stock market, it’s unlikely that you’re ever going to get that exact return in any given year—and the variation in returns from one year to the next is enormous.