The Uncommon Average: A Long-Term View on Annual Returns

Greg Addison | 7-12-2019

Taking the “long view” is an approach that tends to serve people well in many areas of life. Think education, health, relationships, etc. The same can certainly be said when it comes to investing in the markets. Showing resilience or the ability to stay committed when things aren’t going your way is a necessary element to being a more successful investor over time. The S&P Index provides plenty of evidence suggesting that a long-term focus makes considerable sense. (See below.)


When we evaluate money managers with whom to partner with our clients’ assets, this long-term focus is one of a number of variables we consider. It’s one of several reasons that we so often use funds from Dimensional Fund Advisors in our portfolios. Of course, it doesn’t hurt that they continually outperform market benchmarks over long periods time. Also, having four Nobel laureates actively involved in your business ain’t too bad either. Take a look at one of Dimensional’s blogs that we found particularly interesting…


Historically, the US stock market has delivered an average annual return of about 10%. However, most years have looked different than the average.

The US stock market has delivered an average annual return of around 10% since 1926. But short-term results may vary, and in any given period stock returns can be positive, negative, or flat. When setting expectations, it’s helpful to see the range of outcomes experienced by investors historically. For example, how often have the stock market’s annual returns actually aligned with its long-term average?

Exhibit 1 shows calendar year returns for the S&P 500 Index since 1926. The shaded band marks the historical average of 10%, plus or minus 2 percentage points. The S&P 500 Index had a return within this range in only six of the past 93 calendar years. In most years, the index’s return was outside of the range—often above or below by a wide margin—with no obvious pattern. For investors, the data highlight the importance of looking beyond average returns and being aware of the range of potential outcomes.

Exhibit 1: S&P 500 Index Annual Returns

Tuning in to Different Frequencies

Despite the year-to-year volatility, investors can potentially increase their chances of having a positive outcome by maintaining a long-term focus. Exhibit 2 documents the historical frequency of positive returns over rolling periods of one, five, and 10 years in the US market. The data show that, while positive performance is never assured, investors’ odds improve over longer time horizons.

Exhibit 2: Frequency of Positive Returns in the S&P 500 Index
Overlapping Periods: 1926-2018


While some investors might find it easy to stay the course in years with above average returns, periods of disappointing results may test an investor’s faith in equity markets. Being aware of the range of potential outcomes can help investors remain disciplined, which in the long term can increase the odds of a successful investment experience. What can help investors endure the ups and downs? While there is no silver bullet, understanding how markets work and trusting market prices are good starting points. An asset allocation that aligns with personal risk tolerances and investment goals is also valuable. By thoughtfully considering these and other issues, investors may be better prepared to stay focused on their long-term goals during different market environments.

Greg Addison

Author: Greg Addison

Greg Addison is the Senior Vice President of Lewer Financial Services, LLC. Lewer Financial Advisors is a corporate Registered Investment Advisor, specializing in both personal wealth management and institutional retirement plan consulting for the individual investors, business owners, dealers, retailers, and franchisees who know The Lewer Companies well.