Broadly speaking, the stock market has returned roughly around 10 percent per year, on average, over the long run. The S&P 500 is the most commonly used stock index to calculate the average stock market returns, because it is broad-based, reliable and has a history going back to 1920s. The mathematical average, in other words, the mean, of S&P 500 annual returns between 1928 and 2013 is 10.5 percent. In the relatively more recent past, from 1964 to 2013, the figure is slightly higher at 11.29 percent but declines to 9.1 percent for the decade from 2003-2013. The more interesting figure, however, is that $100 invested in the stock market in 1923 would have grown to over $255,000 at the end of 2013.
While the average stock market return has been consistently above inflation as well as profits reaped through bonds and bank deposits, there have been several tough years for stockholders. In 1931, for example, stocks declined a whopping 43.8 percent as a result of the depression. In the more recent past, stock investors lost 36.5 percent in 2008. An unfortunate reality of financial math is that after a catastrophic loss, the same percentage gain will not bring you back to square one. If your $100 drops by 40 percent, you will have $60. If this capital then appreciates by 40 percent, it will turn into only $84, leaving you well below the $100 you started with.