The S&P 500's "Average" Year Almost Never Happens. Here's How Often It Actually Lands Near 10%.

The S&P 500 typically delivers around 10.6% annual returns over long periods, making it a popular choice for long-term investors. However, this average is not representative of individual years. Only four out of 69 calendar years from 1957 to 2025 saw total returns between 8% and 12%, while 15 years saw losses, and 25 years finished with gains over 20%.

When sorted by returns, more years exceed the average than fall below it. Notably, 39 years ended with returns above 12%, while 26 years ended below 8%, including the 15 losing years. The most extreme year was 1958, with a 44% gain, while the worst was 2008, with a 37% decline during the financial crisis. Even the narrow range of 5% to 15% covers only 14 of the 69 years.

The recent record shows a similar pattern, with the index climbing more than 18% in seven of the next nine years following 2016's return of around 11.8%. The reasons behind this discrepancy lie in the fact that losing years can be significant, and a substantial loss requires an even larger gain to recover. The 37% drop in 2008, for example, necessitated a 58% gain to break even, pulling the long-run compound return down to around 10.6%.

Consequently, a 10% return may not accurately forecast any given year, but it represents the sum of many good years and a few bad ones. As the time frame extends, the average begins to align more closely with the observed returns. For instance, 10-year periods achieve this range in 22% of cases, while 20-year periods are above 50%, and 30-year periods exceed 75%.

In summary, the 10% figure largely represents long-term trends rather than yearly performance, and even then, significant deviations can occur based on the valuation of the index at the beginning of the period.