How Much Can You Really Make in the Stock Market?

What rate of return can you expect from the stock market?

That’s the billion-dollar question. Is it 15%? 12%? 8%?

How about 3%? Is that a reasonable number in your mind?

Many so-called financial gurus tell you that you can expect a 12% return in the stock market. But let’s look at the math. We’ll use the S&P index as our “market,” since it’s largely representative of the stock market overall. We’ll look at average rate of return for a given time frame, as well as annualized rate of return. If you are unclear about the difference, go back and review the section comparing average with annualized returns.

From 2000 through 2018, the average index change over the 19-year period was 4.4%.

What? That’s nowhere near the 12% that Dave Ramsey says you can make! Further, if you consider the annualized average – what really matters – you’ll see that if an investor put any amount of money in an S&P fund in 2000 and just let it ride for 19 years, they would only have earned an average of 2.85% per year!* That’s without any taxes and without any fees included.

Was it worth it? What about investors that got a little panicky anywhere between 2002 and 2004, or in 2008 during the financial meltdown? Those who couldn’t stomach the downtown and sold during the panics did even worse, including losing a pile of money. People might have been better off in CDs, financially and psychologically.

The truth is that depending on what data you analyze, you’ll get different results. The real question is, what data will apply to your retirement? And what if the market crashes right around the time you retire, when your employment income discontinues? What will the market do the year you turn 65? It’s anyone’s guess what data will apply to YOU. Would you like to see the potential impact of picking the “wrong” time to retire?

Are you interested in getting off the Wall Street roller coaster and growing your wealth safely and efficiently, while avoiding financial baths like what occurred during the Dotcom bust and the Financial Crisis of 2008? If you didn’t participate in the crashes, could you then take advantage of the buying opportunities after the crashes?

* Calculate annualized return by using a Constant Average Growth Rate calculator. Plug in the beginning value ($100), the ending value ($171), and the number of periods (19). The CAGR is 2.85%.