What can an investor expect from the stock market ?

10/2024

"The stock market (equity market ) has tended to produce statistically positive returns over a long time frame and has therefore been the most reliable source of long term returns amongst many asset classes."

As a working citizen ( of the U.S. / North American continent ), you are responsible for saving and growing money for your retirement.

Accumulated savings ultimately have to live somewhere, and wherever they’re placed, they’re exposed to the steady erosion of inflation. Inflation shows up in the rising prices of the everyday goods and services we rely on, and modern life doesn’t give us many ways to opt out of consuming them. The cost of living will keep climbing over time, and those price increases are unlikely to pause during our lifetimes—pleasant as that scenario would be.

Parking your money in a bank account typically earns only low single‑digit interest, and that return often can’t keep up with long‑term inflation, which averages roughly 2.5–3% a year. If your savings earn about 2% while prices rise 3%, the math works against you: your real return is effectively zero or even negative, meaning your purchasing power quietly shrinks over time.

You’re essentially saying that if the return on a basic bank account can’t outpace inflation, then relying on that account alone won’t preserve your purchasing power. To actually grow your savings in real terms, you may need to look beyond traditional bank deposits and consider other places where your money has a better chance of earning more than inflation takes away.

Historical Context of Stock Market Returns

Chart 1 shows the + 7.7% exponential growth of the the stock market, as measured by the S&P500 index, over a 100 year period.

Chart 1

Since 1954, the U.S. equity market has risen more than it has fallen ( has had more positive years of return vs. negative ) putting odds of positive return outcome in favor of the average passive investor.

Chart 2

Chart 3

Chart 4

If we had placed our savings into the the stock market, we can see that, historically since 1954 ( chart 2 ), the S&P 500 produced an average rate of +17 % per year, 72% of the time ( chart 2 above ). Yet, the stock market has produced an annual average rate of -13.1 % when it has gone down ( chart 3 ). If we average all of the positive years and negative years, the S&P 500 has produced an annual return of 8.6 % ( and that includes taking out that nasty inflation effect ! ).

A bank account produces SOME % interest rate ( say 2 - 4% presently / 0% with the "inflation" effect ) 100% of the time. An +8.6 % return looks a lot better than a 0% return !

A video "Investing: The Evidence", a basic primer on the stock market can be found in the Home tab