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When it comes to investing, there are a lot of important factors to keep in mind. But one of the most crucial is undoubtedly understanding the average stock market return. This figure can tell one a lot about what you can expect from their investments and help them make more informed decisions about where to put their money. This article will break down everything you need to know about the average stock market return, including historical averages and what they mean for investors today.

 

What Is the Average Stock Market Return?

To put it simply, the average stock market return is the percentage of increase or decrease in a stock market index over a certain period. This figure can be calculated for any given timeframe but is most commonly reported annually. For example, if the Dow Jones Industrial Average (DJIA) were up 10% from January 1st to December 31st, the average stock market return would be 10%.

 

It’s important to note that the average stock market return is different from the total return. The total return includes changes in the value of the index itself and dividends paid out by companies within that index. So, if the DJIA increased by 10% and dividends totalled 2%, the total return would be 12%.

 

What Is the Historical Average Stock Market Return?

Now that one knows what the average stock market return is let’s a look at what it has been historically. After all, this figure can fluctuate quite a bit from year to year, and a long-term understanding of trends is crucial for making informed investment decisions.

 

Over the last century, the average annual stock market return in the United States has been around 10%. This may not seem like much, but it’s important to remember that this figure includes both positive and negative years. For example, during the Great Depression of the 1930s, the stock market plunged by nearly 90%. So, while there have been some down years, the long-term trend has been positive.

 

What Does the Average Stock Market Return Mean for Investors?

Now that one knows what the historical average stock market return is, one might be wondering what it means for investors today. After all, 10% might not seem like a lot, especially when considering the risks involved with investing in stocks.

 

However, it’s important to remember that the average stock market return is average. So, while there will be years where the market doesn’t perform well, there will also be years where it outperforms the average. In fact, over the last decade, the stock market has posted annual returns of around 20%. So, while there’s no guarantee that one will make a lot of money investing in stocks, the historical data shows that it’s certainly possible to do so.

 

The average stock market return is important for every investor to understand. While it can fluctuate yearly, the long-term trend has been positive, with an annual return of around 10% over the last century. So, while there are no guarantees when it comes to investing, the average stock market return is a good indicator of what one can expect to earn overtime.