Indexy a trhy
Historical Stock Market Returns: What to Expect Long-Term
Key takeaways
- The historical nominal return of the S&P 500 is approximately 10% per year since 1928.
- After deducting inflation, the real return is approximately 6–7% per year.
- Past returns do not guarantee future results — but they show the power of equities as an asset class.
- Reinvestment of dividends is crucial — without it the return is significantly lower.
- Taxes and management costs can reduce real return by 1–2 percentage points.
The historical average annual return of the US equity market (S&P 500) is around 10% nominally since 1928 — but this number needs context to be useful.
What the 10% figure includes (and does not)
The figure includes reinvested dividends — without them the return would be 2–3 percentage points lower. It does not include inflation, taxes, or management costs. After deducting typical annual inflation (roughly 3%), the real return falls to approximately 6–7% per year. Taxes and costs can take off another 1–2 points.
For the Czech investor there is also currency risk: returns are in dollars, the investment is in Czech crowns. Over a long horizon exchange rates fluctuate in both directions and the effect typically evens out — but short-term it can be significant.
Global markets vs. the US
The S&P 500 is the historical outperformer. MSCI World (including European and Japanese markets) has historically achieved lower returns — approximately 7–8% nominally. The advantage of a global index is better diversification: the US does not necessarily have to dominate in the same way over the next decades. A comparison of both approaches is in the article All World vs. S&P 500.
Return variability — not a straight line
The average 10% return says nothing about how returns are distributed. Historical annual S&P 500 returns ranged from −47% to +54%. The large variability is the price of long-term return — investors who cannot bear it and sell on a decline will not achieve the average.
- Over 10 years, the S&P 500 ended positive historically in approximately 94% of cases.
- Over 20 years, it ended positive in 100% of historically recorded periods.
What this means for you
Historical returns are not a guarantee, but they are the best guide we have. The key lesson: time in the market is more important than timing the entry. How the mathematics of compounding works in your portfolio is described in the article on the power of compound interest.
FAQ
What is the average annual return of the stock market?
The S&P 500 historically approximately 10% nominally per year since 1928 (with reinvested dividends). After inflation approximately 6–7% in real terms. These values are averages — annual returns fluctuate strongly.
Are historical returns a guarantee of future results?
No. Historical data is the best guide, but the future may be different. Demographic changes, geopolitics, or technological disruptions can affect returns in both directions.
How do taxes affect the Czech investor's return?
Dividends are subject to a 15% withholding tax. Gains from the sale of ETFs older than 3 years are tax-exempt (time test) or at a gain of up to CZK 100,000 per year (value test). Accumulating ETFs defer the tax burden to the time of sale.