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What is the Average Annual Return of S&P 500?

Updated Sep 9, 2019
The world's leading indicator of the American stock market, the S&P 500 index, is one of the most closely tracker stock market index globally. Since its inception in the year 1928, the index has maintained a consistent history for being the leading stock market tracker. As of today, it comprises of more than 500 top stocks by market value of the America. These select top 500 stocks are called the index constituents. The value of S&P 500 index is computed based on the market capitalization value of the constituent stocks. Here is a list of the companies that make up the S&P 500 index as of writing. Based on the available historical data values of the S&P 500 index, this article looks at the average returns generated by the index over its long running history.

Historic Returns of S&P 500 Index

Based on the available historical data, the S&P 500 index closed at the value of 17.05 in the month of January 1950. Though the index traces its history back to 1928, the available data is from 1950 onward so we base our return calculation from the start of that year - that is, January 1950 - which forms the starting point for the analysis of returns. As of January 1, 2019, the index has a closing price of 2,510.03. Essentially, the index has risen from a value of 17.05 in January 1950 to a value of 2,510.03 over the last 69 years.

CAGR of S&P 500 Index

The CAGR, or compounded annual growth rate, represents the net annual returns generated over multiple time periods if one stays invested over the entire duration. It represents the average annual growth rate that one gets for each year from the initial period invested value to the end period invested value if one assumes compounded investment over the time period. Compounded investment means that no interest or dividend earned in taken off from the investment. Any such intermediate earnings are re-invested in the same investment. For instance, if you had invested in a S&P 500 ETF in January 1950 which paid annual dividends, then all those dividends are instantly invested back in the same S&P 500 ETF. This leads to the entire corpus remaining invested, and qualifies for compounded investing. Explore List of S&P 500 ETFs.

Using the standard CAGR formula on the initial and end period values of 17.05 and 2,510.03 respectively over the 69 years period, the CAGR return of S&P 500 index comes to around 7.5 percent. However, one must note that this is CAGR return which is based on compounded assumption.

 Graph: S&P 500 Index Values

Average Returns of S&P 500

However, other sources may suggest that the average annual return for the S&P 500 when looked from 1928 to 2018 stands at around 9.8%. Those computations are also correct, because the CAGR value is dependent of the starting and final value. In the case of above calculation which runs from 1950 to 2019, the value can be seen dipping down over the year 2018. As visible from the graph included above, this dip in the last phase is responsible for decline in the CAGR value when calculated between January 1950 and January 2019.
Another observation that one must make from the above chart is that the index has risen marginally between 1950 and 1983. Calculating the CAGR value from 1950 to 1983 (33 year period) based on the start value of 17.05 and the end value of 145.3, the annual compounded return of S&P 500 index comes to 6.7 percent.
Another check when starting value is taken as 145.3 in January 1983 and end value is taken as 2,510.03 in January 2019, the S&P 500 annual compounded returns CAGR over the 36 year period rises to 8.24 percent. Overall, the average returns from the leading index are known to fluctuate depending upon which time period one looks at.
When calculated from start to the till date, the average returns from S&P 500 index are around 9.8 percent. When calculated over a particular intermediate periods, the returns will fluctuate widely.
One can trade and invest in the S&P 500 index in several different ways. Explore the different ways in which one can invest in the S&P 500 index.
The following companies constitute the S&P 500 index as of writing:
 TickerCompany NameSub-SectorMarket Cap (Sort)
AAPLApple Inc.Computer Manufacturing$947.36 billion
AMZNAmazon.com IncCatalog and Specialty Distribution$877.62 billion
GOOGAlphabet Inc Class CComputer Software-Programming and Data Processing$824.31 billion
GOOGLAlphabet Inc Class AComputer Software-Programming and Data Processing$823.95 billion
FBFacebook, Inc.Computer Software-Programming and Data Processing$533.3 billion
BRK.BBerkshire HathawayInvestment Managers$501.72 billion
BRK.ABerkshire Hathaway Inc.Investment Managers$501.08 billion
BABAAlibaba Group Holding LimitedBusiness Services$458.51 billion
VVisa Inc.Business Services$395.97 billion
JPMJ P Morgan Chase and CoMajor Banks$359.98 billion

 See the Full list of Market Cap of all S&P 500 Companies.

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