Stock Market Return CalculatorFirst, different calculators and financial services use different indexes to obtain return averages. As for the US stock market, most, however, use the S&P 500 index nowadays. Here is an image of the calculator I used to get the annual stock market return from 2010 through 2019. You can see how simple this is. (I discovered MoneyChimp.com over a decade ago!) First I’ll clarify a few things you’ll want to know in annual return calculators which are important to understand if you’re going to use this information. Read my related post How Much Money Do You Need to Retire?
Stock Market Return CalculationThis is important: Sometimes the simple average is used for a return calculation, but the annualized return presents a more realistic return number. This is also known as the Compound Annual Growth rate. Note that this is also called the CAGR. According to Money Chimp, the simple average is usually about 1% to 2% more than the annualized growth rate. The stock market return based on the simple average return from 2010 to 2019 is 14.09% as you can see from the image above. But the Compound Annual Growth Rate is 13.50%. While 1% to 2% may not seem like a big deal, it is! This is especially true over long periods of time like retirement, or for large amounts of money. Read my related post Are Dividends or Capital Gains Better?
Are Dividends Included in Annual Return?Some stock market return calculations include dividends and some exclude dividends. If we exclude dividends from the stock market return from 2010 through 2019, note from the image below that the CAGR return for 2010 through 2019 drops to 11.16%. The reason for including or excluding dividends is so important is that many investors look to past stock market returns to estimate future returns for retirement planning. If you’re planning to live off investments, such as dividend income, it will be important to exclude dividends from the annual stock calculation since you’ll be spending the dividends to live. You’ll still get the dividends but they won’t be reinvested into more shares and the dividends won’t be compounding. Remember, compounding is an important part of investment returns. I explain this more in my post How Much Money Do You Need to Live Off Investments?
Stock Market Returns Past Decade Vs Prior DecadeStock market annualized returns from 2000 through 2009 were -2.72% excluding dividends. What a contrast of the stellar stock market returns from 2010 through 2019.
Annualized Returns Vs Simple ReturnsReturn calculations can be a little tricky. Financial marketing material will often provide the return calculation that looks the best. There is no evil in this. They are selling a product or service in the same way that my local boutique is selling a dress with their products presented in the best possible way. It’s up to us, as educated investors, to understand how investment returns are calculated and presented to us. Then we can make sure we are comparing apples to apples when selecting investment products or evaluating financial advisor performance.
The information on this website is for education only and is not to be construed as personal financial advice.