what is a good return on stocks? A Guide

Lead summary

In plain terms, the question "what is a good return on stocks" asks what rate of return investors should reasonably expect or consider “good” when holding U.S. equities, how returns are measured, and how expectations change with time horizon, risk and personal goals. Historically, broad U.S. equity benchmarks are often cited at roughly 10% per year nominal and about 7% after inflation — useful reference points but not guarantees. This guide explains the key metrics, historical benchmarks, how to calculate returns, factors that change what counts as "good," risk adjustments, practical planning steps, and tools investors use to set realistic expectations.

Note: This article is educational and neutral. It does not provide personalized investment advice. For individual targets, consult a certified financial planner.

what is a good return on stocks — we begin here and revisit this phrase throughout to anchor the discussion for planners and beginners.

Definitions and key metrics

When asking "what is a good return on stocks," first define the measures investors use. Clear definitions avoid confusion when comparing numbers.

• Absolute return: The raw gain or loss on an investment, often expressed in dollars. Example: a $1,000 investment becomes $1,100 = $100 absolute gain.
• Percentage gain/loss: The absolute return expressed as a percent of initial capital. Example: $100 gain on $1,000 equals 10%.
• Compound annual growth rate (CAGR): The single annual growth rate that takes an investment from its beginning value to its ending value, assuming compounding. CAGR smooths year-to-year volatility to express multi‑year performance.
• Annualized return: Similar to CAGR; expresses multi-period performance as an annual rate.
• Total return: Price change plus dividends (and other distributions). For stocks, total return is the preferred long‑term measure because dividends and reinvestment materially increase outcomes.
• Nominal vs. real (inflation‑adjusted) returns: Nominal returns ignore inflation; real returns subtract inflation to show changes in purchasing power.

Why these matter: when someone asks "what is a good return on stocks," answers vary depending on whether they mean nominal vs real, total return vs price return, or a single year vs multi‑decade horizon.

Return calculation examples

Example 1 — CAGR (multi‑year):

• Start value: $10,000. End value after 10 years: $19,672.
• CAGR = (19,672 / 10,000)^(1/10) - 1 = 0.071 or 7.1% per year.

Example 2 — Total return with dividends:

• Stock price rises from $50 to $60 during a year (20% price gain). The stock paid a $1 dividend (2% yield) that is reinvested.
• Total return ≈ 22% for the year (20% + 2%). Over multiple years, reinvested dividends compound and can add materially to long‑term returns.

Example 3 — Nominal vs. real:

• Nominal return = 10% in a year. If inflation = 3%, real return ≈ 10% - 3% = 7% (exact formula: (1+nominal)/(1+inflation)-1).

These simple examples show why focusing on total, inflation‑adjusted, and annualized measures gives a more realistic answer to "what is a good return on stocks."

Historical benchmarks

Investors and planners commonly use broad U.S. indices as benchmarks. When asked "what is a good return on stocks," many point to long‑term averages for the S&P 500, Dow Jones Industrial Average, and NASDAQ Composite as reference points.

• S&P 500: Widely cited long‑term nominal average of about 10% per year (varies slightly depending on start/end dates and whether dividends are included). After adjusting for inflation, many sources report roughly 6–8% real annualized returns across the 20th and 21st centuries. (Sources: NerdWallet, SoFi, Stash, Experian, Chase, Bankrate.)
• Dow Jones and NASDAQ: Returns differ depending on composition (Dow is price‑weighted and has fewer stocks; NASDAQ is tech‑heavy and more volatile). Long‑term averages are broadly similar to the S&P 500 but can diverge by decade.

Important notes from historical series:

• Period dependence: averages depend on the time window used. Including the 1929–1932 crash, the Great Depression, or the dot‑com bubble affects long‑run averages.
• Dividends matter: total return series including dividends are meaningfully higher over long horizons than price‑only returns.
• Real vs nominal: historical nominal returns are commonly near 10% for broad U.S. equities; subtract average inflation (~2–3% over many recent decades) to get real returns near 6–8%.

Source summary: retained financial education and industry sources (SoFi, NerdWallet, Stash, Experian, Chase, Bankrate, The Motley Fool) report similar ballpark figures: roughly 10% nominal and about 7% inflation‑adjusted as long‑term S&P 500 references.

Factors that determine whether a return is "good"

Context matters. When you ask "what is a good return on stocks" you must weigh several factors:

• Time horizon: Short‑term returns swing widely. A 20% return in one year may be excellent but unsustainable; over 30 years, consistent 6–8% real returns are historically strong.
• Risk tolerance: Higher target returns generally require higher volatility and drawdown risk. An investor targeting 12–15% yearly may accept larger crashes.
• Portfolio composition: Small‑cap, value, or sector‑concentrated portfolios may target higher expected returns than large‑cap diversified portfolios, but with higher dispersion.
• Market cycle and valuation: Current valuations (P/E, CAPE, Buffett indicator) influence expected forward returns. High starting valuations usually correlate with lower expected future returns.
• Fees and taxes: Gross returns are trimmed by management fees, trading costs and taxes. Net (after fees/taxes) return matters most for investors.
• Inflation and real objectives: If your goal is purchasing power growth, real returns (after inflation) are what count.

These variables mean there is no single numeric answer to "what is a good return on stocks" — rather a personal, risk‑adjusted, and horizon‑aware target.

Risk and volatility considerations

Good returns must be weighed against the risk taken to achieve them.

• Volatility: Standard deviation of returns — higher volatility increases probability of large losses in some years.
• Drawdowns: Peak‑to‑trough declines matter psychologically and materially for long‑term outcomes if investors sell during declines.
• Sequence‑of‑returns risk: For retirees or near‑retirees, poor returns early in the withdrawal phase reduce portfolio sustainability even if long‑term average returns remain unchanged.

Risk‑adjusted measures:

• Sharpe ratio: (Return − Risk‑free rate) / Standard deviation. Compares excess return per unit of volatility.
• Sortino ratio: Like Sharpe but penalizes downside volatility only.

A "good" return on stocks for one investor may be subpar in risk‑adjusted terms compared with a lower nominal return that exhibited much less volatility.

Benchmarks and relative performance

Comparing to an appropriate benchmark answers part of "what is a good return on stocks."

• Choose the right benchmark: Use S&P 500 for broad U.S. large‑cap exposure; use Russell 2000 for small caps; use sector or style indices for specialty exposures.
• Active vs passive: Active managers are typically evaluated on alpha — returns above a benchmark after fees. Because fees and costs are persistent, many active managers underperform after fees, which affects what investors consider a "good" return net of fees.

When deciding whether a return is good, compare net performance versus a relevant benchmark over matching time horizons.

Typical guidance for “good” returns by investor profile

These ranges are illustrative only and intended to frame realistic expectations based on risk profile and objectives:

• Conservative / capital preservation investors: target lower nominal returns (e.g., 3–6% real, which might equate to ~5–8% nominal depending on inflation). This is achieved via bonds, cash equivalents, and conservative equities.
• Balanced / diversified investors: often plan around long‑term market averages. A common planning assumption is roughly 7% real / ~10% nominal for broad U.S. equities over long horizons.
• Aggressive / growth investors: may target higher expected returns (e.g., >10% real) by taking concentrated positions, smaller companies, or higher volatility strategies — with commensurate downside risk.

Sources such as Bankrate and The Motley Fool offer similar illustrative ranges and stress personalization based on goals and horizon.

How to set realistic return expectations

Follow practical steps rather than guessing an attractive percentage:

1. Define goals: retirement income, home purchase, education — each requires a different return and horizon.
2. Time horizon: longer horizons generally allow higher equity allocation and higher expected returns.
3. Use historical averages as a guide — but not a guarantee. Historical S&P 500 averages (~10% nominal, ~7% real) are benchmarks for planning, not promises.
4. Adjust for starting valuation: if valuations are high (see CAPE or Buffett Indicator), consider more conservative return estimates for the next 5–10 years.
5. Model scenarios: run best/worst/median return scenarios and stress test withdrawals, fees, taxes, and sequence risk.
6. Focus on net returns: subtract expected fees, transaction costs and taxes to get realistic take‑home growth.

These steps help answer "what is a good return on stocks" in a way that is actionable and aligned with personal needs.

Strategies to pursue or improve returns

Improving net returns often centers on process and cost control rather than chasing short‑term outperformance.

• Broad diversification: ETFs and index funds reduce single‑company risk and capture market returns.
• Dollar‑cost averaging: Reduces timing risk by investing regularly over time.
• Low fees: Small differences in expense ratios compound into large long‑term effects.
• Tax efficiency: Use tax‑advantaged accounts, tax‑loss harvesting and long‑term holding to reduce taxes on gains.
• Rebalancing: Periodic rebalancing enforces discipline and can improve risk‑adjusted outcomes.
• Selective active strategies: For experienced investors, targeted active bets may raise expected returns, but typically increase risk and require careful evaluation net of fees.

Remember: higher expected returns usually require more concentrated risk-taking; consider whether you can tolerate the volatility before pursuing aggressive strategies.

Taxes, fees, and real (net) returns

Gross returns reported in headlines are not what investors keep. Net returns matter:

• Management fees: Expense ratios and advisory fees directly reduce returns. A 0.5% higher fee reduces long‑term wealth significantly due to compounding.
• Trading costs: Frequent trading increases costs and tax liabilities.
• Taxes: Short‑term gains taxed at higher ordinary income rates vs long‑term capital gains rates. Dividends may be qualified or non‑qualified, affecting tax rates.

When answering "what is a good return on stocks," specify whether you mean gross or net returns. Many planners use net return assumptions after expected fees and a simple tax adjustment.

Limitations of historical averages and forecasting pitfalls

Common traps when using history to answer "what is a good return on stocks":

• Past performance is not a guarantee of future results.
• Period selection bias: cherry‑picking start and end dates changes averages.
• Survivorship bias: historical datasets may exclude failed companies or delisted funds.
• Regime changes: monetary policy regimes, demographic trends, technological shifts (e.g., AI adoption) can alter expected returns.

Use historical averages as a reference and incorporate valuation, macro, and personal factors into forward expectations.

Comparing stocks to other asset classes (brief)

• Bonds and cash: historically lower nominal returns but lower volatility. Investors trade lower expected returns for stability and income.
• Other assets (real estate, commodities): returns and risks differ; illiquidity and leverage factors matter.
• Cryptocurrencies: extreme volatility and comparatively short historical record. Not comparable to broad equities for long‑term, well‑understood expected returns.

Stocks have historically offered higher long‑term returns than bonds and cash, but with higher volatility.

Practical examples and scenarios

Illustrative outcomes for a $10,000 investment held for various horizons with three different annualized rates (5%, 7%, 10%), assuming annual compounding:

• 10 years:
  • 5% → $16,288
  • 7% → $19,672
  • 10% → $25,937
• 20 years:
  • 5% → $26,533
  • 7% → $38,697
  • 10% → $67,275
• 30 years:
  • 5% → $43,219
  • 7% → $76,123
  • 10% → $174,494

These scenarios show compounding power: modest differences in annual return produce large differences over decades, which is central to why accurate expectations for "what is a good return on stocks" matter.

Tools, calculators and data sources

Common planning resources and data sources used to assess "what is a good return on stocks":

• CAGR and investment return calculators (many free tools exist).
• Historical index return tables (S&P 500, Dow, NASDAQ) and total return series.
• Financial planning software for Monte Carlo simulations and scenario analysis.
• Reputable financial education sources: SoFi, NerdWallet, Stash, The Motley Fool, Experian, Chase, Bankrate (these were used as retained references in this article).

Use multiple sources and verify date ranges and whether returns include dividends.

Common misconceptions

A few frequent misunderstandings when people ask "what is a good return on stocks":

• "The market always returns 10% every year": No — 10% is a long‑term average; annual returns vary widely.
• Confusing nominal with real returns: Inflation reduces purchasing power; plan in real terms where possible.
• Ignoring dividends: Over decades, dividends and reinvestment often account for a large share of total return.
• Equating high short‑term returns with sustainable performance: single‑year outperformance can be followed by large reversals.

Addressing these avoids unrealistic expectations.

Recent valuation context and timely considerations (news excerpt summary)

As of Dec 26, 2025, reporting in the provided news excerpt noted that Berkshire Hathaway had been a net seller of stocks with $184 billion in net sales over the recent quarters and held substantial cash. The same reporting highlighted that the S&P 500 had a cyclically adjusted price‑to‑earnings (CAPE) ratio near 39.4 in December 2025 — one of the highest valuations historically — and that historically, months where CAPE exceeded ~39 have been followed by below‑average one‑ to three‑year returns in many cases. The excerpt also referenced the Buffett Indicator (total market capitalization to GDP) near 225%, which some analysts view as signaling elevated valuations.

Reporting date and source: the data summarized above is drawn from the news excerpt provided and reflects conditions as of late December 2025. These valuation indicators are often used to temper near‑term return expectations, although they are not deterministic.

Implication for "what is a good return on stocks": when starting valuations are unusually high, forward expected returns over the next 5–10 years are often lower than long‑term historical averages. That means a planner who asks "what is a good return on stocks" today should consider adjusting short‑to‑medium term expectations downward, and plan for wider scenario ranges.

Practical guidance and next steps for investors

1. Clarify your objective: Are you measuring capital growth, retirement income, or buying power preservation? That defines target real returns.
2. Pick horizon‑appropriate assumptions: Use long‑term market averages for multi‑decade plans but adjust short‑term expectations if valuations are high.
3. Build an asset allocation consistent with your risk tolerance and target returns.
4. Favor low fees and tax efficiency to maximize net returns.
5. Revisit assumptions periodically, especially after large market moves or changes to your personal situation.
6. Consider consulting a certified financial planner for personalized targets.

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Common questions answered briefly

• Q: Is 10% a guaranteed "good" return? A: No. 10% is a historical long‑term nominal average for broad U.S. equities (S&P 500), not a guaranteed annual rate.
• Q: Should I expect 10% every year? A: No. Some years will be much higher, others negative. Multi‑year averages smooth volatility.
• Q: Do dividends matter? A: Yes. Total return including dividends is the most accurate measure of long‑term stock performance.

Tools and further reading (selected sources used in this guide)

• SoFi — guides on what is considered a good return on investment.
• NerdWallet — articles on average stock market returns and historical S&P 500 results.
• Stash — discussions about average market return and long‑run equity performance.
• The Motley Fool — investor guidance on good return benchmarks and planning.
• Experian, Chase, Bankrate — additional historical figures, comparisons and planning advice.

Use primary index data from providers of S&P 500 historical total returns and trusted academic series (e.g., Robert Shiller data) for rigorous analysis.

Common pitfalls to avoid

• Relying solely on recent performance.
• Ignoring fees and taxes when computing expected take‑home returns.
• Overconcentrating in single stocks to chase higher returns without assessing downside risk.

Guidance for further reading and professional help

If you want personalized return targets or a detailed retirement plan, consult a certified financial planner. For ongoing education, review the listed sources and use calculators for CAGR, Monte Carlo simulations, and withdrawal sustainability tests.

Appendix A: Glossary

• CAGR: Compound Annual Growth Rate, the annualized growth rate of an investment over a period.
• Total return: Price appreciation plus dividends and other distributions.
• Nominal return: Return before adjusting for inflation.
• Real return: Return after subtracting inflation; reflects purchasing power change.
• Dividend yield: Annual dividends divided by current price.
• Sharpe ratio: Risk‑adjusted performance metric measuring excess return per unit of total volatility.
• Drawdown: The decline from a historical peak in a portfolio's value.

Appendix B: Suggested historical return table

Include a table (recommended for the wiki entry) showing nominal and inflation‑adjusted annualized S&P 500 total returns across multiple horizons (5, 10, 20, 30 years), with date ranges and source attribution (e.g., S&P Dow Jones Indices, Robert Shiller data, academic publications). This article does not embed the full table but suggests editors add verified figures with source dates.

Final thoughts and next action

For most long‑term investors, asking "what is a good return on stocks" is the start of a planning conversation, not a single numeric destination. Use historical benchmarks (roughly 10% nominal / ~7% real for broad U.S. equities) as a reference, then tailor targets for your horizon, risk tolerance, fees, taxes and starting valuation. Model scenarios, focus on net returns, and keep diversification and discipline at the center of your approach.

To continue learning, review the sources cited in this guide, try CAGR and Monte Carlo calculators, and if you trade or store assets consider secure, user‑focused solutions and educational resources from Bitget.