what is a good rate of return on stocks

What Is a Good Rate of Return on Stocks

If you ask what is a good rate of return on stocks, the short answer is: it depends. This guide explains what investors mean by a “good” stock return, how historical benchmarks like the S&P 500 are commonly used, and why goals, time horizon, and risk tolerance change the answer. Read on to learn measurable benchmarks, the difference between nominal and real returns, how fees and taxes matter, and practical steps you can use to set a realistic, personalized target.

Definitions and Key Terms

Before deciding whether a return is “good,” it helps to understand core terms you will see repeatedly.

• Rate of return: the percentage gain or loss on an investment over a period. It can be measured for a single year or annually over multiple years.

• Nominal vs. real return: nominal return is the raw percentage change in value; real return adjusts nominal return for inflation to show purchasing-power change.

• Compound annual growth rate (CAGR): the constant annual growth rate that takes an investment from its beginning value to its ending value over a multi‑year period. It is useful for smoothing volatile year‑to‑year returns.

• Total return: includes price appreciation plus dividends and other distributions. Total return is the preferred measure for comparing investments over time.

• Return on investment (ROI) formulas: simple ROI = (Ending Value - Beginning Value) / Beginning Value. For annualized return use CAGR = (Ending/Beginning)^(1/years) - 1.

• How indices report returns: broad indexes like the S&P 500 are often reported both as price returns (price-only) and total returns (including dividends). For long-term investor comparisons, the total return series is more informative.

(Source: Investopedia — definitions and formulas summarized.)

Historical Benchmarks for U.S. Stocks

When readers ask what is a good rate of return on stocks, many professionals point to long-run U.S. equity history as a baseline.

• Over the long run (many decades), the S&P 500 has frequently been cited as delivering roughly 10% nominal annualized returns. After adjusting for inflation, that commonly translates to around 6%–7% real annual return. These are long-run averages and smooth a lot of volatility.

• Shorter spans can be much higher or lower than the long-run average. For example, some 10‑ or 20‑year periods have returned substantially more than 10% annually; others have produced negative real returns.

(Source references commonly used for these figures include NerdWallet, SoFi, Experian, and Investopedia.)

As of recent reporting (market context)

• As of Dec 31, 2024, long-run studies and historical datasets commonly used by advisors show S&P-style broad U.S. equity returns near the 10% nominal / ~7% real reference over very long horizons.

• As of Dec 31, 2025, major market commentary noted strong calendar performance for the S&P 500 in 2025 (reports cited year-to-date gains near the mid-to-high teens), but also flagged elevated valuations and cyclically adjusted P/E (CAPE) readings that could presage lower near-term returns. (As of Dec 31, 2025, according to major financial reporting.)

These items illustrate why the frequent benchmark (10% nominal, ~7% real) is useful but not a guaranteed forward predictor.

Why long-term averages differ from year-to-year results

Volatility is central to the difference between long-term averages and single-year returns.

• Annual returns for stocks are widely dispersed: strong years (e.g., +30% or more) and weak years (e.g., -30% or worse) both occur. The arithmetic mean of those returns across many years is not the same as the compounded (geometric) result an investor actually experiences.

• A 10% average annual return over a century is the product of compounding after many volatile years; averages smooth that volatility and show the long-term trend.

• Example extremes: markets have experienced double-digit declines in some years and large rebounds in subsequent years; short samples are heavily influenced by starting and ending points.

(Discussion informed by historical return analyses and market data; see Stash and Yahoo Finance for examples and year‑by‑year charts.)

Practical takeaway

Because of volatility, ask yourself: are you measuring what matters (annualized total return over your time horizon) or focusing on calendar-year outcomes? If you want to know what is a good rate of return on stocks for your plan, use the timeframe and total return measure that align with your goals.

What “Good” Means — Investor Objectives and Time Horizon

A “good” rate of return is personal. Different investors have different purposes:

• Retirement savers often target a sustainable long-term CAGR that supports their retirement withdrawal plan. Advisors frequently use historical long-run equity returns as input but adjust for inflation, fees, and expected future market conditions.

• Near-term savers or people saving for a house in five years prioritize capital preservation; a “good” return may be much lower if it reduces the chance of losing principal.

• Speculators seeking rapid capital appreciation may chase high nominal returns but accept much higher volatility and risk of loss.

Typical planning benchmarks

• For conservative long-term planning, many models use a 7% real / 10% nominal equity assumption as a historical reference point. But planners will often stress-test plans with lower equity returns (e.g., 4%–6% real) to check resilience.

(Source: SoFi guidance on financial planning assumptions.)

Risk–Return Tradeoffs and Types of Equities

Expected returns vary across equity types and historically align with risk:

• Large-cap vs. small-cap: small-cap stocks have historically offered higher average returns but with higher volatility and more frequent losses in bad years.

• Growth vs. value: growth stocks can deliver higher returns when growth expectations are realized, but they often trade at higher multiples and can fall sharply if growth disappoints. Value stocks have offered different return profiles and sometimes higher income via dividends.

• Domestic vs. international: returns differ across countries and regions; emerging markets may offer higher long-term returns but come with higher political and currency risk.

• Dividend-paying vs. non-payers: dividend payers (income stocks) have historically delivered competitive or better long-term total returns in many studies while often showing lower volatility than non-payers. For example, a multi-decade study by Hartford Funds (with Ned Davis Research) found that income stocks outperformed non-payers over a 51-year span while being less volatile.

(Source: Motley Fool, Stash, Hartford Funds summary.)

Adjusting for Inflation, Fees, and Taxes

When judging whether a return is “good,” remember to use net, real returns—not gross nominal numbers.

• Inflation: a 10% nominal return when inflation is 3% yields ~6.8% real return. Real return reflects purchasing-power growth.

• Fees: management fees and trading costs reduce investor returns. For example, a 1% annual fee on an otherwise 8% gross return reduces annual net return materially over decades by compounding.

• Taxes: realized capital gains and dividend taxes lower after-tax returns. Tax-efficient placement (e.g., retirement accounts) and tax-aware strategies affect net performance.

(Source: SoFi, Investopedia.)

Measuring and Comparing Returns

Useful measures:

• Annualized return (CAGR): best for multi-year comparison.

• Arithmetic vs. geometric averages: arithmetic mean is the simple average of annual returns; geometric mean (CAGR) represents the compound growth rate and is the correct measure of investor experience over time.

• Total return: price changes plus dividends and distributions.

• Risk-adjusted measures: the Sharpe ratio adjusts excess return per unit of volatility and helps compare investments with different risk profiles.

When you ask what is a good rate of return on stocks, think in terms of risk‑adjusted, after-fee, real returns.

(Source: Investopedia.)

Benchmarks and Practical Targets

Practical benchmark targets depend on investor profile:

• Long-term buy-and-hold equity investors: a conservative historical reference is ~10% nominal / ~7% real for broad U.S. equity (S&P-style) over very long horizons. Use this as a planning input, not a promise.

• Conservative investors: may target lower returns aligned with bonds or CDs (e.g., 1%–4% nominal in low-rate environments) and shift allocation away from equities.

• Income-focused investors: may prioritize dividend yield plus modest price appreciation. Recent multi-decade research shows income stocks can produce above-average returns with lower volatility, but individual security selection matters.

Realistic targets should blend historical context with current valuation and macro conditions. If valuations are high today, many planners model lower expected future returns.

(Sources: NerdWallet, SoFi, Experian.)

Portfolio Construction and Diversification

Overall portfolio returns come from asset allocation and how you manage it.

• Asset allocation: the split between equities, fixed income, cash, and alternative assets largely determines long-term expected return and volatility.

• Diversification: spreading capital across sectors, geographies, and asset classes reduces single-company or sector risk and may improve the risk-adjusted outcome.

• Rebalancing: periodic rebalancing enforces a buy-low/sell-high discipline and maintains a target risk profile.

Investors should aim for a portfolio return consistent with their risk tolerance, not to maximize stock returns alone. For many users, using passive broad-market exposure plus a tilt (like dividend or value exposure) achieves a balance between expected return and cost.

(Sources: Motley Fool, Stash.)

Active vs. Passive Approaches and Expected Outcomes

• Passive index-tracking: seeks market returns (before fees). Historically, passive strategies and low-cost index funds/ETFs often outperform the majority of active managers after fees.

• Active stock-picking: aims to beat the market but evidence shows many active managers underperform their benchmarks after fees and costs. Net-of-fee outperformance is difficult and inconsistent.

Investors should weigh the higher cost and lower probability of long-term outperformance by active managers against the low cost and broad diversification of passive options. If you choose active management, account for realistic net-of-fee expectations.

(Sources: Motley Fool, academic reviews, and practitioner summaries such as Ben Felix’s evidence-based commentary.)

Setting Personal Return Expectations and Using Benchmarks

Practical steps for setting an individualized target when asking what is a good rate of return on stocks:

1. Tie required rates to your financial goal: compute the CAGR you need to reach the goal (retirement savings target, down payment, etc.). Use the CAGR formula.

2. Run scenarios: test different equity CAGRs (e.g., 4%, 6%, 8%) and show how contributions and time affect outcomes.

3. Stress-test for downside: evaluate how sequences of poor returns impact your plan (sequence of returns risk).

4. Adjust for fees, taxes, and inflation to produce a realistic net target.

(Source: SoFi, Investopedia.)

Common Misconceptions and Caveats

• Myth: "Stocks always return 10% every year." Reality: long‑term average may be near 10% nominal for broad U.S. stocks over many decades, but annual returns vary widely and can be negative.

• Survivorship bias: historical averages can be biased if failed companies are excluded from long datasets.

• Extrapolating short-term performance: recent strong returns are not guarantees of future gains; valuation, macro, and sector dynamics matter.

(Insight based on evidence discussed by Ben Felix and others.)

Examples and Illustrative Calculations

Small changes in CAGR produce large differences over time. Here are three simple illustrations using the future value formula: FV = PV * (1 + r)^n.

Assume a starting investment (PV) of $10,000 and no additional contributions.

• At 5% CAGR for 30 years: FV = 10,000 * (1.05)^30 ≈ 10,000 * 4.3219 = $43,219.

• At 7% CAGR for 30 years: FV = 10,000 * (1.07)^30 ≈ 10,000 * 7.6123 = $76,123.

• At 10% CAGR for 30 years: FV = 10,000 * (1.10)^30 ≈ 10,000 * 17.4494 = $174,494.

A difference of 3 percentage points (from 7% to 10%) more than doubles the ending value across 30 years.

If you ask what is a good rate of return on stocks for long-term wealth accumulation, these compounded examples show why even small differences in CAGR matter greatly.

(Source: SoFi examples adapted.)

Tools, Further Reading, and References

Use these types of tools to translate benchmarks into personal plans:

• Historical return tables and index total return series (for S&P 500 and other benchmarks).

• CAGR calculators and future-value calculators.

• Monte Carlo retirement planners to stress-test different return and volatility assumptions.

• Fee and tax calculators to estimate net returns.

Recommended reputable sources for deeper study: NerdWallet, SoFi, Motley Fool, Stash, Investopedia, Yahoo Finance, Experian, and evidence-based commentators like Ben Felix.

As of Dec 31, 2024, Hartford Funds (with Ned Davis Research) published a detailed dividend study comparing dividend-paying stocks to non-payers across 1973–2024. The report showed that income stocks produced a higher average annual return and lower volatility over the span studied; this reinforces that dividend strategies can be part of a return-oriented, lower-volatility approach for some investors.

Additionally, as of Dec 26, 2025, market reporting highlighted specific high-yield income names (for example, AGNC Investment and PennantPark Floating Rate Capital were quoted with double-digit yields in late‑2025 reporting), underscoring that high nominal yields exist but require careful due diligence and risk assessment. As of Dec 26, 2025, Yahoo Finance reported the quoted yields and market metrics for those securities in snapshot form.

(Reporting dates and sources included for context.)

Benchmark Examples from Recent Reporting (dated context)

• As of Dec 31, 2024, Hartford Funds (with Ned Davis Research) reported that income/dividend stocks produced an average annual return of 9.2% across a 1973–2024 window, outperforming non-payers (4.31%) with lower volatility.

• As of Dec 26, 2025, market coverage noted several individual securities with very high dividend yields (e.g., AGNC showing yields above 13% and PennantPark with double-digit yields) and discussed the drivers and risks of those yields. These examples emphasize that yield alone is not a full measure of whether an investment return is “good.”

(Quoted dates and reporting sources are provided to make the data timely and verifiable.)

How to Use Benchmarks Without Overconfidence

• Use the long-run S&P reference (roughly 10% nominal / ~7% real) as a planning input, not a guaranteed future result.

• Adjust assumptions for current valuations, interest-rate environment, and your personal time horizon.

• Favor net-of-fees, after-tax, real-return assumptions when modeling outcomes.

• Maintain a margin of safety by planning for lower-than-expected returns and testing multiple scenarios.

When you ask what is a good rate of return on stocks, the responsible answer balances historical context with current market conditions and personal financial needs.

Practical Steps You Can Take Today

• Calculate required CAGR for each major goal (retirement, home purchase, education) using a CAGR/future-value calculator.

• Build a diversified equity core (broad-market exposure) and consider tilts (dividend, value, small-cap) if they match your objectives and risk tolerance.

• Minimize fees and taxes where possible. Use low-cost, passive instruments for core exposure and place income-generating or tax-inefficient assets in tax-advantaged accounts.

• Rebalance periodically and maintain a written plan that defines your risk tolerance and return expectations.

• If you use digital asset services for portfolio management or custody, consider secure providers. For web3 wallets, Bitget Wallet is recommended for integration with Bitget services. For trading and execution tied to your investment strategy, Bitget exchange provides tools and an execution platform consistent with portfolio needs. (No external links provided.)

Common Questions Answered

Q: Is 10% a guaranteed “good” return?

A: No. Ten percent is a long-term historical average for broad U.S. equities, not a guaranteed annual return. Year-to-year returns can be far above or below 10%.

Q: Should I chase double-digit dividend yields?

A: Very high yields often reflect elevated risk. Research and due diligence are required to determine whether a high yield is sustainable. Historical studies show well-vetted dividend payers can outperform non-payers over long horizons, but each security is unique.

Q: How many years should I look at when deciding a “good” rate?

A: Align the measurement period with your goal. For retirement decades away, multi-decade average behavior matters. For near-term goals (1–5 years), focus on capital preservation and shorter-term risk.

(Sources: Investopedia, SoFi, Hartford Funds summary.)

Summary and Practical Takeaway

There is no single numeric answer to what is a good rate of return on stocks that fits every investor. Historically, broad U.S. equities (S&P‑style) have averaged about 10% nominal per year (roughly 6%–7% after inflation) across many decades. However, individual goals, time horizons, risk tolerance, fees, and taxes change what is “good” for you.

Set personalized targets by converting your financial goals into required CAGRs, stress-testing plans using lower-return scenarios, and focusing on net, real, risk‑adjusted results. Use diversified, low‑cost core exposures to capture broad equity return potential and consider income strategies or tilts only after understanding tradeoffs and sustainability. Finally, take advantage of reputable tools and secure platforms—such as Bitget and Bitget Wallet for execution and custody needs—to implement and monitor your plan.

Further exploration: run a CAGR calculator, model 3–4 return scenarios (e.g., 4%, 6%, 8% real), and compare how contributions and time change outcomes. If you want integrated execution and wallet services, explore Bitget’s features and Bitget Wallet for secure custody and trading support.

Sources and reporting context:

• Definitions and measurement notes: Investopedia.
• Financial planning guidance and scenario use: SoFi.
• Historical return benchmarks and explanations: NerdWallet, Experian, Stash.
• Active vs. passive evidence and fund commentary: Motley Fool, Ben Felix (evidence-based summaries).
• Dividend study: As of Dec 31, 2024, Hartford Funds (with Ned Davis Research), "The Power of Dividends: Past, Present, and Future" (1973–2024 data) reported higher average returns and lower volatility for income stocks versus non-payers.
• Market snapshots and high-yield examples (yields, prices, market caps): As of Dec 26, 2025, major market reporting summarized individual security yields and valuation context (e.g., AGNC, Pfizer, PennantPark), noting yields and sensitivity to interest rates and valuation measures. These date-stamped reports are included to provide contemporaneous examples; quoted yields and market data reflect the reporting dates cited above.

All recommendations above are informational and educational, not investment advice. Data and quoted figures are presented with reporting dates for context. Verify live data and consult a licensed advisor for personal financial decisions.