Everyone “knows” that big U.S. stocks return 10% per year on average over the long term, right? Well, maybe not. Yes, that 10% average return on the Standard & Poor’s 500 Index prevailed from 1926 through 2015. But an individual’s return on big U.S. stocks will vary widely depending on the year they began investing.
For instance, an investor who got into the market in 1995 and who matched the S&P 500 Index’s returns would have earned 9.4% per year, close to that 10% long-term average. But if the same investor began investing in 2000, her average annual return through 2015 would have been only 4.1% per year!
What created that huge disparity? Well, the investor who started in 1995 had the advantage of five straight years of spectacular annual returns, ranging from 37.6% in 1995 to 21% in 1999. The investor who started in 2000 suffered through the 2000 to 2002 bear market, losing 9.1% in 2000, 11.9% in 2001, and 22.1% in 2002.
Consider the difference in average annual returns for investors who began investing in 2008 and those who started in 2009. The 2008 investor suffered a massive 37% decline in his first year of investing. His average annual return through 2015 was just 6.5% per year. The investor who started a year later and missed the bear market had an average annual return of 14.8% per year, more than double that of the earlier investor.
Here are the average annual returns (through 2015) for the S&P 500 Index from every year since 1995:
| Start year | Return | Start year | Return |
| 1995 | 9.4% | 2006 | 7.3 |
| 1996 | 8.2 | 2007 | 6.4 |
| 1997 | 7.5 | 2008 | 6.5 |
| 1998 | 6.2 | 2009 | 14.8 |
| 1999 | 5.0 | 2010 | 13.0 |
| 2000 | 4.1 | 2011 | 12.6 |
| 2001 | 5.0 | 2012 | 15.3 |
| 2002 | 6.3 | 2013 | 15.1 |
| 2003 | 8.9 | 2014 | 7.4 |
| 2004 | 7.4 | 2015 | 1.4 |
| 2005 | 7.1 |
Source: Standard & Poor’s Index Services Corp.
Richard Schroeder, CFP®
