Global equity markets have delivered an average annual return of around 10% since 1970.[1]However, short-term results may vary, and in any given period equity 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 equity market’s annual returns actually aligned with its long-term average?

Chart 1 below shows calendar year returns for the S&P 500 Index since 1926 (The S&P 500, or just the S&P, is an American stock market index based on the market capitalisations of 500 large companies).

Over this period, the average annual return of the S&P 500 has been 10%.[2]  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.

Chart 1. S&P 500 Index Annual Returns 1926–2018

Past performance is no guarantee of future results.  Performance may increase or decrease as a result of currency fluctuations. Actual returns may be lower.

In US dollars. S&P data © S&P Dow Jones Indices LLC, a division of S&P Global. Indices are not available for direct investment. Index returns are not representative of actual portfolios and do not reflect costs and fees associated with an actual investment.

Tuning into 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. Chart 2 below reveals the historical frequency of positive returns over rolling periods of one, five, and 10 years in the US market. This shows that, while positive performance is never assured, investors’ odds improve over longer time horizons.

Past performance is no guarantee of future results.  Performance may increase or decrease as a result of currency fluctuations.Actual returns may be lower.

In US dollars. From January 1926–December 2018, there are 997 overlapping 10-year periods, 1,057 overlapping 5-year periods, and 1,105 overlapping 1-year periods. The first period starts in January 1926, the second period starts in February 1926, the third in March 1926, and so on. S&P data © S&P Dow Jones Indices LLC, a division of S&P Global. Indices are not available for direct investment. Index returns are not representative of actual portfolios and do not reflect costs and fees associated with an actual investment.

[1]. As measured by the MSCI World Index (gross dividends) in US dollars from January 1970–April 2019. MSCI data © MSCI 2019, all rights reserved.

[1]. As measured by the S&P 500 Index in US dollars. S&P data © 2019 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.