20 Years of Stock Market Returns, by Calendar Year
Returns can't be predicted but historical patterns can be useful
Past market returns provide a great way for you to see how much volatility to expect when you invest in the stock market. In the table at the bottom of this article, you can see historical stock market returns from 1986 through 2016, listed on a calendar year basis.
How Often Does the Stock Market Lose Money?
Negative stock market returns occur, on average, one out of every four years. You will see the positive years far outweigh the negative years.
The average annualized return of the S&P 500 Index was about 11.69% from 1973 - 2016. In any given year, the actual return you earn is likely to be far different than the average return.
The media talks a lot about market corrections and bear markets.
- A market correction means the stock market went down over 10% from it's previous high. This can happen in the middle of the year, and the market can recover by year-end, so a market correction may never show up as a negative in calendar year returns.
- A bear market occurs when the market is down over 20% from its previous high. Most bear markets last for about a year in length. In the data below, you see two bear markets; 2002 and 2008.
The pattern of returns can vary over different decades. In retirement, your exposure to a bad pattern, where many negative years occur early on in retirement, is referred to as sequence risk. As bad years are to be expected, it doesn't mean you shouldn't invest in stocks; it just means you need to set realistic expectations when you do.
Time in the Market vs. Timing the Market
The down years have an impact, but the degree to which they impact you is often determined by whether you decide to stay invested or get out. An investor with a long term view may have great returns, while one with a short term view who gets in, and then bails out after a bad year may have a loss.
For example, in 2008, the S&P 500 lost 37% of its value. If you invested $1,000 at the beginning of the year in an index fund, you would have 37% less at the end of the year - or a loss of $370 - but it is only a loss if you sell the investment at that time. However, the magnitude of that down year may mean it could take many years for your investment to recoup its value. After 2008, your starting value the follow year would have been $630. In 2009, there was an increase of 26.5%. This would have brought your value up to $797, which is still less than your $1,000 starting point.
In 2010, if you stayed invested, you would have seen another increase of 15.1%. Your money would have grown to $917, still short of a full recovery. In 2011, another positive year occurred and you would have seen another boost, but only by 2.1%. It was not until 2012's increase of another 16% that you would be back over the $1,000 invested with an investment value of $1,088.
If you remained invested the 2008 down year was not devastating to you. If you sold, however, and moved your money into safe investments, it would not have been able to recover its value over that same time period.
No one knows ahead of time when those negative stock market returns are going to occur.
If you are not willing to stay invested through a bear market than you need to either stay out of stocks, or be prepared to lose money, because no one will be able to consistently time the market to get in and out and avoid the down years.
If you are going to invest, you should expect the down years. How on earth could you be surprised when they occur? You should know they are going to occur, and stick with your long-term investing plan.
Calendar Returns vs. Rolling Returns
Most investors don't invest January 1, and withdraw on December 31, yet market returns tend to be reported on a calendar year basis. An alternate way to view returns is to look at rolling returns, which would look at returns of 12 month periods, such as February to the following January, March to the following February, April to the following March.
Check out my graphs of historical rolling returns, for a perspective that extends beyond a calendar year view. Calendar year returns are shown in the table below.
|Historical S&P 500 Index Stock Market Returns|
*Market return data from Dimensional's Matrix Book 2016 and DFA Returns 2.0 Software program.