The U.S. stock market has delivered higher returns than most other investments, including bonds and Treasuries. In this article, we explore how those returns vary depending on factors like time horizon and market volatility, helping you understand the balance between risk and reward. It examines options like the S&P 500, real estate investment trusts (REITs), and government bonds to show how each performs over time. By comparing long-term growth in stocks versus bonds over the past century, you can see why equities play a central role in building wealth through disciplined, long-term investing.
Key Takeaways
- Stocks generally offer the highest returns over time, but they come with higher risks due to volatility.
- Holding stocks for longer periods reduces the risk of losses and increases the likelihood of gains.
- The S&P 500 showed average returns of about 13% over ten-year periods with no negative returns.
- Real estate investment trusts (REITs) and gold outperformed the S&P 500 from 1999 to 2023.
- Diversification can help manage volatility and maximize potential returns across different investment classes.
Understanding Long-Term Stock Returns
The stock market has produced higher gains over long periods compared to bonds. For example, $100 invested in the Standard & Poor’s 500 Index (S&P 500) in 1928 would have been worth more than $787,000 by 2023. The same $100 invested in 10-year Treasuries for the same period would have been worth around just $7,300.
The Importance of Holding Periods in Stock Investments
Of course, not everyone holds the same stocks for many decades. Plenty of people lose money in the market in the short term. The key to capturing high returns from the U.S. stock market is to invest for the long term. Let your money remain invested while you’re waiting out short-term volatility.
The S&P 500 is far more volatile over any 12 months than a longer term. You face a greater risk of losing money during one year if you should sell. Stocks tend to fall sharply just before and during economic recessions. Time the market poorly and your losses could be painful.
Stretch the holding period from 12 months to five years and you’re more likely to make money. Only a few five-year periods would have resulted in a loss in the S&P 500 between 1945 and 1995. A 10-year holding period performed even better with returns averaging about 13% and zero negative returns. The longer the holding period, the more likely you are to make money.
Treasury bonds rose in 77 of the years from 1928 to 2023. Stocks rose in 70 of those years. This reflects the short-term volatility the stock market experiences despite rewarding investors with higher returns than the bond market over the long term.
Important
The shorter the holding period, the greater the risk of losing money in more volatile markets.
Comparing Stock Market Returns with Commodities
Stocks have produced solid gains since 1999 despite the burst of the Dotcom Bubble in 2001 and the global financial crisis of 2008. The S&P 500 was nonetheless outperformed by real estate investment trusts (REITs) and gold from about 1999 through 2023.
Two REIT subgroups have outperformed the S&P 500 since 1999: Extra Space Storage Inc. with a 15.39% total return and CubeSmart with a 13.97% total return. The S&P 500 total return compares at 12.94%.
The Dow Jones Community Index Gold boasted a 7.8% annualized return average from the turn of the century through 2023. The S&P 500 had a 7% return over the same time.
These numbers point to the challenge of volatility and perhaps to the wisdom of diversification as well.
Why Does the U.S. Stock Market Offer Solid Returns Over Time?
The stock market consists of U.S. companies focused on building profits and sharing them with investors. The U.S. maintains an economic system supporting business growth. Long-term investor returns typically rise as public businesses grow.
What’s an Example of a Company With Good Historical Returns?
Warren Buffett has famously been a committed long-term investor in the U.S. stock market through his company, Berkshire Hathaway. His stock market investment choices returned an astonishing 4,384,748% from 1964 to 2023.
How Does Being a Long-Term Investor Help Build Returns?
A key to building high stock market returns is to let your portfolio weather periods of price drops due to economic events that are bound to happen over time. Portfolio values may drop, but investors only incur losses if they sell. You allow them to recover to previous levels and grow even more in value simply by holding on to investments during rough market patches.
The Bottom Line
The stock market has consistently delivered some of the highest long-term returns compared to other investments like bonds, REITs, and commodities. But these higher returns come with greater short-term volatility and risk. If you stay invested over the long term, you’ll benefit from the market’s ability to recover and grow compared to investors with shorter time horizons who may face more uncertainty. Diversifying across asset classes and consulting a financial advisor can help you manage risk and build a balanced, long-term investment strategy.