The Average Return of the Stock Market Over a Lifetime

One dollar invested in 1925 would have grown to $3,425 by 1995.
One dollar invested in 1925 would have grown to $3,425 by 1995. (Image: Jupiterimages/ Images)

According to New York University, stocks have earned on average 11.31 percent per year since 1928. Keep in mind that stock performance has varied greatly from one decade to the next. For example, between 2001 and 2010, stocks suffered two severe bear markets in which the majority of stocks declined, so stock investors earned an average of only 3.54 percent per year during that period.

Cumulative Returns

Assuming you begin investing when you are 20 years old, your investments will have 45 years to accumulate before you retire. The amount of money you can earn over a lifetime of investing can be significant if you start early enough. If you were to invest $10,000 when you are 20, when you reach 65, your investment would be worth $1,241,761 if it grew at its historical average of 11.31 percent. If you were to invest an additional $2,000 per year, your investment portfolio would grow as high as $3,666,295.

Stocks vs. Bonds

Time tends to smooth out stock price volatility, but stocks can experience steep declines during certain years. In 2008, for example, stocks lost more than 30 percent of their value over just a few short months. While stocks earn higher returns over time, bond returns are more stable from year to year. For example, since 1928, bonds have earned 5.28 percent per year. While stocks struggled between 2001 and 2010, bonds earned 5.8 percent. Thus, if you need your money over the next few years, bonds offer a safer alternative.

Risk and Reward

A general rule when it comes to investing is that the higher the risk, the higher the potential reward. Stocks, as an investment class, are riskier than bonds, CDs and even real estate. Stock investors can lose money from one year to the next. However, given enough time, stocks also outperform all other major investment classes by a significant margin.

International Investment

Investing in international stocks is generally considered riskier than investing in U.S. companies, and therefore earns higher rates of return. In a study performed by Duke University, U.S. stocks underperformed all major world markets between 1970 and 1985. For example, those who invested in Latin American stocks earned more than twice as much as U.S. stock investors. Investors in European and Asian stocks also did significantly better.

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