The S&P 500, also known as the Standard & Poor’s 500, is a stock market index that tracks the performance of 500 large-cap publicly traded companies in the United States. It is widely considered to be a benchmark for the overall performance of the US stock market. The index is calculated based on the market capitalization of the companies included, meaning that the larger companies have a greater weight in the index. The S&P 500 is considered a leading indicator of the U.S stock market and its performance is often used as a barometer of the overall health of the economy. Many investment professionals and analysts use the S&P 500 as a benchmark to measure the performance of their portfolios and other investment vehicles, such as mutual funds and exchange-traded funds (ETFs). The index is widely followed by investors, and its performance is often reported in the financial media.
Historical average return of the S&P 500 and its fluctuations over time
Here is the complete table of the annual returns for the S&P 500 dating back to 1928, including a comparison to other financial assets:
| Year | S&P 500 (includes dividends) | 3-month T.Bill | US T. Bond | Baa Corporate Bond | Real Estate | Gold* |
| 1928 | 43.81% | 3.08% | 0.84% | 3.22% | 1.49% | 0.10% |
| 1929 | -8.30% | 3.16% | 4.20% | 3.02% | -2.06% | -0.15% |
| 1930 | -25.12% | 4.55% | 4.54% | 0.54% | -4.30% | 0.10% |
| 1931 | -43.84% | 2.31% | -2.56% | -15.68% | -8.15% | -17.38% |
| 1932 | -8.64% | 1.07% | 8.79% | 23.59% | -10.47% | 21.28% |
| 1933 | 49.98% | 0.96% | 1.86% | 12.97% | -3.81% | 27.26% |
| 1934 | -1.19% | 0.28% | 7.96% | 18.82% | 2.91% | 31.75% |
| 1935 | 46.74% | 0.17% | 4.47% | 13.31% | 9.77% | 0.43% |
| 1936 | 31.94% | 0.17% | 5.02% | 11.38% | 3.22% | 0.09% |
| 1937 | -35.34% | 0.28% | 1.38% | -4.42% | 2.56% | -0.23% |
| 1938 | 29.28% | 0.07% | 4.21% | 9.24% | -0.87% | 0.17% |
| 1939 | -1.10% | 0.05% | 4.41% | 7.98% | -1.30% | -1.23% |
| 1940 | -10.67% | 0.04% | 5.40% | 8.65% | 3.31% | -1.66% |
| 1941 | -12.77% | 0.13% | -2.02% | 5.01% | -8.38% | 0.00% |
| 1942 | 19.17% | 0.34% | 2.29% | 5.18% | 3.33% | 0.00% |
| 1943 | 25.06% | 0.38% | 2.49% | 8.04% | 11.45% | 0.00% |
| 1944 | 19.03% | 0.38% | 2.58% | 6.57% | 16.58% | 0.00% |
| 1945 | 35.82% | 0.38% | 3.80% | 6.80% | 11.78% | 2.54% |
| 1946 | -8.43% | 0.38% | 3.13% | 2.51% | 24.10% | 0.00% |
| 1947 | 5.20% | 0.60% | 0.92% | 0.26% | 21.26% | 0.00% |
| 1948 | 5.70% | 1.05% | 1.95% | 3.44% | 2.06% | 0.00% |
| 1949 | 18.30% | 1.12% | 4.66% | 5.38% | 0.09% | -8.70% |
| 1950 | 30.81% | 1.20% | 0.43% | 4.24% | 3.64% | 9.56% |
| 1951 | 23.68% | 1.52% | -0.30% | -0.19% | 6.05% | 0.00% |
| 1952 | 18.15% | 1.72% | 2.27% | 4.44% | 4.41% | -0.35% |
| 1953 | -1.21% | 1.89% | 4.14% | 1.62% | 11.52% | 0.69% |
| 1954 | 52.56% | 0.94% | 3.29% | 6.16% | 0.92% | 0.57% |
| 1955 | 32.60% | 1.73% | -1.34% | 2.04% | 0.00% | -0.03% |
| 1956 | 7.44% | 2.63% | -2.26% | -2.35% | 0.91% | -0.11% |
| 1957 | -10.46% | 3.23% | 6.80% | -0.72% | 2.72% | -0.11% |
| 1958 | 43.72% | 1.77% | -2.10% | 6.43% | 0.66% | 0.43% |
| 1959 | 12.06% | 3.39% | -2.65% | 1.57% | 0.11% | 0.00% |
| 1960 | 0.34% | 2.88% | 11.64% | 6.66% | 0.77% | 0.48% |
| 1961 | 26.64% | 2.35% | 2.06% | 5.10% | 0.98% | -0.06% |
| 1962 | -8.81% | 2.77% | 5.69% | 6.50% | 0.32% | -0.06% |
| 1963 | 22.61% | 3.16% | 1.68% | 5.46% | 2.14% | -0.40% |
| 1964 | 16.42% | 3.55% | 3.73% | 5.16% | 1.26% | 0.03% |
| 1965 | 12.40% | 3.95% | 0.72% | 3.19% | 1.66% | 0.06% |
| 1966 | -9.97% | 4.86% | 2.91% | -3.45% | 1.22% | 0.03% |
| 1967 | 23.80% | 4.31% | -1.58% | 0.90% | 2.32% | -0.51% |
| 1968 | 10.81% | 5.34% | 3.27% | 4.85% | 4.13% | 12.47% |
| 1969 | -8.24% | 6.67% | -5.01% | -2.03% | 6.99% | 5.01% |
| 1970 | 3.56% | 6.39% | 16.75% | 5.65% | 8.22% | -9.45% |
| 1971 | 14.22% | 4.33% | 9.79% | 14.00% | 4.24% | 16.69% |
| 1972 | 18.76% | 4.07% | 2.82% | 11.41% | 2.98% | 48.78% |
| 1973 | -14.31% | 7.03% | 3.66% | 4.32% | 3.42% | 72.96% |
| 1974 | -25.90% | 7.83% | 1.99% | -4.38% | 10.07% | 66.15% |
| 1975 | 37.00% | 5.78% | 3.61% | 11.05% | 6.77% | -24.80% |
| 1976 | 23.83% | 4.97% | 15.98% | 19.75% | 8.18% | -4.10% |
| 1977 | -6.98% | 5.27% | 1.29% | 9.95% | 14.65% | 22.64% |
| 1978 | 6.51% | 7.19% | -0.78% | 3.14% | 15.72% | 37.01% |
| 1979 | 18.52% | 10.07% | 0.67% | -2.01% | 13.74% | 126.55% |
| 1980 | 31.74% | 11.43% | -2.99% | -3.32% | 7.40% | 15.19% |
| 1981 | -4.70% | 14.03% | 8.20% | 8.46% | 5.10% | -32.60% |
| 1982 | 20.42% | 10.61% | 32.81% | 29.05% | 0.56% | 15.62% |
| 1983 | 22.34% | 8.61% | 3.20% | 16.19% | 4.75% | -16.80% |
| 1984 | 6.15% | 9.52% | 13.73% | 15.62% | 4.68% | -19.38% |
| 1985 | 31.24% | 7.48% | 25.71% | 23.86% | 7.47% | 6.00% |
| 1986 | 18.49% | 5.98% | 24.28% | 21.49% | 9.61% | 18.96% |
| 1987 | 5.81% | 5.78% | -4.96% | 2.29% | 7.88% | 24.53% |
| 1988 | 16.54% | 6.67% | 8.22% | 15.12% | 7.21% | -15.26% |
| 1989 | 31.48% | 8.11% | 17.69% | 15.79% | 4.38% | -2.84% |
| 1990 | -3.06% | 7.49% | 6.24% | 6.14% | -0.69% | -3.11% |
| 1991 | 30.23% | 5.38% | 15.00% | 17.85% | -0.16% | -8.56% |
| 1992 | 7.49% | 3.43% | 9.36% | 12.17% | 0.82% | -5.73% |
| 1993 | 9.97% | 3.00% | 14.21% | 16.43% | 2.16% | 17.68% |
| 1994 | 1.33% | 4.25% | -8.04% | -1.32% | 2.51% | -2.17% |
| 1995 | 37.20% | 5.49% | 23.48% | 20.16% | 1.80% | 0.98% |
| 1996 | 22.68% | 5.01% | 1.43% | 4.79% | 2.42% | -4.59% |
| 1997 | 33.10% | 5.06% | 9.94% | 11.83% | 4.02% | -21.41% |
| 1998 | 28.34% | 4.78% | 14.92% | 7.95% | 6.45% | -0.83% |
| 1999 | 20.89% | 4.64% | -8.25% | 0.84% | 7.68% | 0.85% |
| 2000 | -9.03% | 5.82% | 16.66% | 9.33% | 9.28% | -5.44% |
| 2001 | -11.85% | 3.39% | 5.57% | 7.82% | 6.67% | 0.75% |
| 2002 | -21.97% | 1.60% | 15.12% | 12.18% | 9.56% | 25.57% |
| 2003 | 28.36% | 1.01% | 0.38% | 13.53% | 9.82% | 19.89% |
| 2004 | 10.74% | 1.37% | 4.49% | 9.89% | 13.64% | 4.65% |
| 2005 | 4.83% | 3.15% | 2.87% | 4.92% | 13.51% | 17.77% |
| 2006 | 15.61% | 4.73% | 1.96% | 7.05% | 1.73% | 23.20% |
| 2007 | 5.48% | 4.35% | 10.21% | 3.15% | -5.40% | 31.92% |
| 2008 | -36.55% | 1.37% | 20.10% | -5.07% | -12.00% | 4.32% |
| 2009 | 25.94% | 0.15% | -11.12% | 23.33% | -3.85% | 25.04% |
| 2010 | 14.82% | 0.14% | 8.46% | 8.35% | -4.12% | 29.24% |
| 2011 | 2.10% | 0.05% | 16.04% | 12.58% | -3.88% | 12.02% |
| 2012 | 15.89% | 0.09% | 2.97% | 10.12% | 6.44% | 5.68% |
| 2013 | 32.15% | 0.06% | -9.10% | -1.06% | 10.72% | -27.61% |
| 2014 | 13.52% | 0.03% | 10.75% | 10.38% | 4.51% | 0.12% |
| 2015 | 1.38% | 0.05% | 1.28% | -0.70% | 5.21% | -12.11% |
| 2016 | 11.77% | 0.32% | 0.69% | 10.37% | 5.31% | 8.10% |
| 2017 | 21.61% | 0.93% | 2.80% | 9.72% | 6.21% | 12.66% |
| 2018 | -4.23% | 1.94% | -0.02% | -2.76% | 4.53% | -0.93% |
| 2019 | 31.21% | 1.55% | 9.64% | 15.33% | 3.69% | 19.08% |
| 2020 | 18.02% | 0.09% | 11.33% | 10.41% | 10.35% | 24.17% |
| 2021 | 28.47% | 0.06% | -4.42% | 0.93% | 18.91% | -3.75% |
| 2022 | -18.01% | 4.42% | -17.83% | -14.49% | 7.30% | 0.55% |
| * Gold prices, prior to 1971, were fixed and with the gold standard in place, and were mostly stable. |
According to data from S&P Dow Jones Indices, the average annual return of the S&P 500 from 1926 to 2020 is approximately 10%. However, it is important to note that this return is not constant and has fluctuated significantly over time. The S&P 500 has experienced numerous bull markets, characterized by a period of sustained upward movement in stock prices, as well as bear markets, characterized by a period of sustained downward movement in stock prices.
The S&P 500 has experienced a number of significant declines over the past century, including the Great Depression of the 1930s, the stagflation of the 1970s, and the Global Financial Crisis of 2008-2009. During these periods, the index experienced significant declines, with losses ranging from 30% to nearly 90%.
However, the S&P 500 has also experienced a number of significant gains over time. The most significant being a bull market that began in March 2009 and ended in March 2020. During this period, the index experienced a gain of approximately 312%.
It is important to note that past performance is not indicative of future results, and that the stock market can be highly volatile. Investors should be prepared for the possibility of significant fluctuations in the value of their investments.
Factors that can affect the S&P 500’s return
There are several factors that can affect the S&P 500’s return, including:
- Economic conditions: The overall health of the economy, as measured by indicators such as gross domestic product (GDP) growth and unemployment rate, can have a significant impact on the performance of the S&P 500. Strong economic growth tends to be associated with positive stock market performance, while weak economic growth can lead to negative performance.
- Company performance: The individual performance of the companies included in the S&P 500 can also affect the index’s overall return. Strong earnings and revenue growth can drive stock prices higher, while weak performance can lead to stock price declines.
- Interest rates: Changes in interest rates can also impact the S&P 500. Rising interest rates can make it more expensive for companies to borrow money, which can negatively impact their earnings and stock prices. Conversely, falling interest rates can make borrowing cheaper, which can be positive for stocks.
- Political and geopolitical events: Political and geopolitical events, such as elections, trade tensions, and natural disasters can also affect the S&P 500’s return. These events can create uncertainty and volatility in the stock market, which can lead to fluctuations in stock prices.
- Market sentiment: Market sentiment, or the overall mood of investors, can also impact the S&P 500’s return. When investors are optimistic, they tend to buy stocks, which can drive prices higher. Conversely, when investors are pessimistic, they tend to sell stocks, which can drive prices lower.
- Technological advancements: Technological advancements such as AI, automation, and digitalization have a huge impact on the economy and therefore on the stock market. Advancements in these areas can create new opportunities and growth for companies, which can drive stock prices higher, or on the other hand, it can disrupt an industry and cause stocks to fall.
It’s worth mentioning that these factors are interrelated and can affect each other, so the market’s reaction to them is not always straightforward. Additionally, these are not the only factors that can affect the S&P 500’s return, and investors should consider a variety of factors when making investment decisions.
The impact of inflation on the S&P 500’s return over time
Inflation can have a significant impact on the S&P 500’s return over time. Inflation is the rate at which the general level of prices for goods and services is rising, and it can erode the purchasing power of an investment’s returns.
When inflation is high, the cost of goods and services increases, which can lead to lower profits for companies. This can negatively impact stock prices, and as a result, the return on the S&P 500. In addition, when interest rates are high, it makes borrowing more expensive for companies, which can also negatively impact profits and stock prices.
On the other hand, when inflation is low, the cost of goods and services does not increase as much, which can lead to higher profits for companies. This can positively impact stock prices, and as a result, the return on the S&P 500. In addition, when interest rates are low, it makes borrowing cheaper for companies, which can also positively impact profits and stock prices.
It’s worth noting that while inflation can impact the S&P 500’s return, it is not the only factor that affects the index’s performance, and the relationship between inflation and stock prices can be complex. For example, a moderate level of inflation can be positive for stocks, as it can indicate economic growth. Additionally, the Federal Reserve can also take actions to control inflation through interest rate adjustments and other monetary policies, which can also impact the stock market.
In summary, the impact of inflation on the S&P 500’s return over time can be significant, and it can affect both positively and negatively depending on the level of inflation and interest rate. Investors should be aware of this relationship and factor it into their investment decisions.
Comparison of the S&P 500’s return to other popular stock market indices
There are several other popular stock market indices that are used as benchmarks for the performance of the global stock market, and they can be compared to the S&P 500 to get a sense of how the US stock market is performing relative to other markets. Some of the most commonly compared indices include:
- Dow Jones Industrial Average (DJIA): The DJIA is another widely followed stock market index in the US that tracks the performance of 30 blue-chip companies. The DJIA is considered to be a benchmark for the overall performance of the US stock market, similar to the S&P 500.
- NASDAQ Composite: The NASDAQ Composite is a stock market index that tracks the performance of all the companies listed on the NASDAQ stock exchange. It includes companies from various sectors and is considered to be a benchmark for the technology sector.
- Russell 2000: The Russell 2000 is a stock market index that tracks the performance of 2000 small-cap companies in the US. It is considered to be a benchmark for the small-cap segment of the US stock market.
- FTSE 100: The FTSE 100 is a stock market index that tracks the performance of the top 100 companies listed on the London Stock Exchange. It is considered to be a benchmark for the UK stock market.
- Nikkei 225: The Nikkei 225 is a stock market index that tracks the performance of 225 companies listed on the Tokyo Stock Exchange. It is considered to be a benchmark for the Japanese stock market.
- Hang Seng: The Hang Seng is a stock market index that tracks the performance of the top companies listed on the Hong Kong Stock Exchange. It is considered to be a benchmark for the Hong Kong stock market.
When comparing the S&P 500 to these other indices, it’s important to keep in mind that the S&P 500 is a market capitalization-weighted index, while some of the other indices may be price-weighted or use other methods of calculation. Additionally, the performance of these indices can be affected by different economic and political factors, so it’s not always an apples-to-apples comparison.
Comparison of the S&P 500’s return to other popular asset classes
In addition to comparing the S&P 500’s return to other stock market indices, it’s also useful to compare its return to other popular asset classes. Some of the most commonly compared asset classes include:
- Bonds: Bonds are debt securities that pay fixed or variable interest to investors. They are considered to be a less risky investment than stocks and can provide a steady stream of income. The return on bonds can vary depending on the type of bond and the creditworthiness of the issuer.
- Real estate: Real estate can be a valuable asset class that generates income through rent or appreciation. The return on real estate investments can vary depending on location, property type, and market conditions.
- Commodities: Commodities are raw materials that are used in the production of goods and services. They can include things like gold, oil, and wheat. The return on commodity investments can vary depending on supply and demand conditions.
- Cash: Cash investments include savings accounts, money market funds, and short-term certificates of deposit. They provide a low-risk investment option, but the return on cash investments is typically low and does not keep up with inflation.
When comparing the S&P 500’s return to these other asset classes, it’s important to keep in mind that the S&P 500 is considered to be a higher-risk investment than bonds and cash, but it has historically provided a higher return over the long-term. Additionally, Real-estate and commodities have their own set of risks and returns, and they are affected by different factors. Diversifying among different asset classes can help to mitigate risk and maximize returns over time.
How can investors gain exposure to the S&P 500 through index funds or ETFs?
Investors can gain exposure to the S&P 500 through index funds or exchange-traded funds (ETFs).
Index funds are mutual funds that aim to replicate the performance of a specific stock market index, such as the S&P 500. These funds typically hold a portfolio of stocks that closely matches the composition of the index they are tracking. By investing in an S&P 500 index fund, investors can gain exposure to the 500 companies included in the index, and their returns will closely match the performance of the S&P 500.
Exchange-traded funds (ETFs) are similar to index funds, but they are traded on stock exchanges just like individual stocks. ETFs also aim to replicate the performance of a specific stock market index, and investors can buy or sell shares of an ETF at any time during the trading day. ETFs have the advantage of being highly liquid, which means that they can be easily bought or sold on the stock market, and they also have low expense ratios which makes them a cost-effective option.
Both index funds and ETFs provide an easy and efficient way for investors to gain exposure to the S&P 500, diversifying their portfolio and getting a broad exposure to the US stock market. They are also considered to be relatively low-cost investment options, which makes them a popular choice for many investors.
It’s worth noting that while both index funds and ETFs can provide exposure to the S&P 500, they may not be exactly the same, as the funds may have different expense ratios, holdings, and tracking errors. Therefore, investors should carefully review the specifics of the funds before investing.
Risks and potential drawbacks of investing in the S&P 500
Investing in the S&P 500, like any other investment, carries certain risks and potential drawbacks. Some of the risks and drawbacks of investing in the S&P 500 include:
- Market risk: The S&P 500 is a stock market index, and therefore it is subject to the same market risk as any other stock investment. This means that the value of the index can fluctuate significantly depending on economic conditions, company performance, and other factors.
- Company risk: The S&P 500 is composed of 500 large-cap companies, and the performance of any individual company can have a significant impact on the index’s overall performance. This means that if a company included in the index experiences financial difficulties, it can negatively impact the returns of the S&P 500.
- Concentration risk: The S&P 500 is composed of a relatively small number of companies, and therefore it may be concentrated in certain sectors or industries. This can lead to a concentration of risk, and investors may be overexposed to a particular sector or industry.
- Inflation risk: The S&P 500’s returns are not adjusted for inflation, which means that the purchasing power of the returns may be eroded over time if inflation is high.
- Management fees: Some index funds or ETFs tracking the S&P 500 may charge management fees, which can reduce the overall return of the investment.
- Short term volatility: The S&P 500 can be volatile in the short term and investors may experience fluctuations in the value of their investment in a short period of time.
- Diversification: While the S&P 500 provides a broad exposure to the US stock market, it may not provide enough diversification for some investors. Investing in other asset classes such as bonds, real estate, commodities, or international markets can help to diversify the portfolio and reduce risk.
It’s important to note that these risks and drawbacks are not unique to the S&P 500 and that investing in any stock market index carries similar risks. Investors should carefully consider these risks and drawbacks before investing in the S&P 500, and consider diversifying their portfolio among different asset classes and markets. Additionally, investors should have a long-term investment horizon, as the stock market can be volatile in the short-term.