Introduction
Historical investment returns reveal one of finance’s clearest patterns: assets that created the most wealth also forced investors to endure the deepest uncertainty. Over nearly a century of U.S. data, stocks greatly outgrew Treasury bills. However, that reward arrived through crashes, long recoveries, and years when safer assets won. Therefore, the historical record does not identify tomorrow’s winner. Instead, it helps investors understand the tradeoff between growth, stability, income, inflation protection, and liquidity.
This guide updates the familiar classroom comparison of large-company stocks, small-company stocks, government bonds, corporate bonds, Treasury bills, real estate, gold, and inflation. The main U.S. table uses data through the end of 2025 because 2026 remains an incomplete return year. In addition, the article draws on the NYU Stern historical return series, the Kenneth R. French Data Library, the U.S. Bureau of Labor Statistics, and current investor guidance from the SEC and FINRA.
Quick answer: U.S. large-company stocks compounded at about 10.02% a year from 1928 through 2025 in the NYU series. Small-cap stocks produced a higher historical rate, about 11.97%, but they also experienced more severe swings. By contrast, 3-month Treasury bills compounded at about 3.37%. Inflation averaged close to 3% over the long run, so the gap between nominal and real wealth remained enormous.
The figures in this article describe indexes and academic portfolios before fees, taxes, trading frictions, and personal behavior. Consequently, no table can promise an investor the same result. This material provides education, not individualized investment advice.
What Historical Investment Returns Can Tell Us
Historical investment returns answer several useful questions. First, they show how different assets behaved across expansions, recessions, inflation shocks, interest-rate cycles, wars, bubbles, and financial crises. Second, they reveal the power of compounding over many decades. Finally, they expose how easily a smooth long-term chart can hide painful short-term losses.
Nevertheless, history has strict limits. A realized return reflects the price investors paid, the income the asset produced, and the economic conditions that followed. Future investors will face different starting valuations, yields, tax rules, technologies, and geopolitical events. For that reason, the SEC warns readers that a fund’s past performance does not reliably predict its future performance in its guide to reading mutual fund and ETF shareholder reports.
The record describes possibilities, not promises
A long history expands the range of outcomes an investor can observe. Examples in the data include the Great Depression, postwar growth, the inflation of the 1970s, the dot-com bust, the 2008 financial crisis, the pandemic shock, and the 2022 bond selloff. However, even 98 annual observations cannot capture every future scenario.
Moreover, one market’s success can distort expectations. The United States became the world’s dominant equity market, and failed markets receive less attention. That broader problem motivates the UBS Global Investment Returns Yearbook 2026, which extends to 1900 across 35 markets. Its record supports the long-run reward from equities, but it also shows that countries and sectors can follow very different paths.
The time period changes the answer
Starting and ending dates matter. An investor who measures stocks from a market bottom will report a stronger return than someone who begins at an expensive peak. Likewise, a bond study dominated by falling interest rates may overstate what bonds can deliver in another rate regime.
Therefore, careful analysis uses several windows rather than one convenient interval. It also separates full calendar years from partial-year data. In this article, 2025 serves as the latest complete year, while the August 2026 update confirms source availability and methodology.
The index definition matters too
An index does not equal the entire market. S&P 500 constituents include leading large-cap U.S. companies and cover about 80% of available U.S. market capitalization. Still, the modern index launched on March 4, 1957. S&P reports a first historical value in 1928, so earlier figures represent reconstructed history rather than a fund someone could have purchased at the time.
Similarly, the small-company series uses a rules-based academic portfolio. The NYU table labels it the bottom market-capitalization decile. Because many early microcap stocks traded with limited liquidity, a real investor could have faced meaningful spreads, commissions, and market-impact costs. Thus, the index return represents a research benchmark, not a frictionless personal account.
How to Calculate Historical Investment Returns Correctly
Before comparing historical investment returns, investors need consistent definitions. Otherwise, a price-only stock chart can appear beside a total-return bond index, or a three-year gain can masquerade as an annual return.
Because historical investment returns depend on these definitions, two reputable sources can report different figures without either source making an error.
Total return has two parts
An investment can reward its owner through income and a change in price. Stocks may distribute dividends, while bonds pay interest. Real estate can generate rent, and some funds distribute capital gains.
The basic holding-period formula is:
[
\text{Total return} = \frac{\text{Ending value} – \text{Beginning value} + \text{Income}}{\text{Beginning value}}
]
For example, suppose an investor pays $1,000 for an asset, receives $30 of income, and later sells it for $1,080. That investment’s dollar return equals $110. Therefore, the percentage return equals 11%.
FINRA explains why dividends, interest, fees, and holding time belong in the calculation in its guide to calculating investment returns. In addition, S&P Dow Jones Indices defines a total-return index as one that reflects both price movements and reinvested dividend income.
Dollar return and percentage return serve different purposes
A dollar return tells an investor how much money the position gained or lost. However, it cannot compare investments of different sizes fairly. A $1,000 gain on a $10,000 position means much more than the same gain on a $100,000 position.
By contrast, a percentage return scales the result to the initial investment. Consequently, analysts use percentage returns when they compare securities, funds, asset classes, and time periods.
| Measure | Formula | Best use |
|---|---|---|
| Dollar return | Ending value minus beginning value, plus income | Measuring the actual gain or loss in an account |
| Percentage return | Dollar return divided by beginning value | Comparing investments of different sizes |
| Holding-period return | Total percentage gain over the full holding period | Describing one investment experience |
| Annualized return | Compound rate per year | Comparing different holding periods |
Annualized return includes compounding
Do not simply divide a multiyear total return by the number of years. Instead, the annualized return finds the constant yearly rate that links the beginning and ending values.
Historical investment returns become comparable across time only after the analyst annualizes them with the same compound method.
[
\text{Annualized return} = (1 + \text{holding-period return})^{1/n} – 1
]
Here, (n) equals the number of years. For example, a 7.5% total gain over three years produces an annualized return of about 2.44%, not 2.50% under simple division. FINRA uses the same compound approach in its explanation of evaluating performance.
When the holding period covers months or quarters, analysts can convert it into an effective annual return. However, annualizing a very short period can create a misleading number because it assumes repeated performance. Therefore, a one-week gain should not become a confident one-year forecast.
Nominal return differs from real return
Nominal return measures the change in dollars. Real return measures the change in purchasing power after inflation.
Historical investment returns usually appear in nominal terms first, so readers must identify and remove the matching inflation rate.
[
1 + \text{real return} = \frac{1 + \text{nominal return}}{1 + \text{inflation rate}}
]
Suppose an investment earns 8% while inflation reaches 3%. The exact real return equals about 4.85%, rather than exactly 5%. Although subtraction offers a useful shortcut, the ratio gives the correct compound result.
This distinction matters because a safe nominal return can still lose purchasing power. FINRA notes that even conservative assets face inflation risk when their yield fails to keep pace with living costs in its overview of investment risk.
Arithmetic average and geometric average answer different questions
The arithmetic average adds annual returns and divides by the number of observations. It helps estimate an average one-period outcome. In contrast, the geometric average, also called the compound annual growth rate or CAGR, measures actual wealth growth across several periods.
Consider a portfolio that gains 50% and then loses 50%. Its arithmetic average return equals 0%. Nevertheless, $100 becomes $75, so the investor loses 25%. The two-year CAGR equals about -13.4%.
Consequently, long-term wealth tables should use geometric returns. Arithmetic averages usually appear higher because volatility creates a compounding drag.
A loss requires a larger percentage gain to recover
Losses and recoveries are mathematically asymmetric. For instance, a 50% decline cuts $100 to $50, so the portfolio needs a 100% gain to return to $100.
| Portfolio decline | Gain required to recover |
| 10% | 11.1% |
| 20% | 25.0% |
| 30% | 42.9% |
| 40% | 66.7% |
| 50% | 100.0% |
| 60% | 150.0% |
As a result, downside control can matter even when an asset offers a lower average return. The right comparison depends on the investor’s goal, time horizon, and ability to wait.
Logarithmic charts show compound growth more honestly
On a standard linear chart, late-stage dollar gains dominate the picture because the base has grown so large. Conversely, a logarithmic scale gives equal visual space to equal percentage changes. A move from $10 to $20 occupies the same vertical distance as a move from $100 to $200 because both represent a 100% increase.
Therefore, long-run charts often use logarithmic axes. Readers should check the labels before interpreting the apparent steepness of a line.
The Main Asset Classes Behind Historical Investment Returns
Historical investment returns make more sense after each asset class receives a clear definition. Although all assets can produce gains or losses, they create value through different economic channels.
Large-company stocks
A share of stock represents ownership in a company. Therefore, stockholders participate in earnings growth, dividends, changing valuations, and business risk. The S&P 500 serves as the common U.S. large-cap benchmark, although its market-cap weighting gives the largest companies the greatest influence.
Large-company stocks have produced strong long-term growth. However, they can fall sharply during recessions, credit crises, valuation resets, and unexpected shocks. Their role usually centers on capital appreciation rather than short-term stability.
Small-company stocks
Small-cap stocks represent companies with lower market values. Researchers often sort the market by market capitalization, which equals share price multiplied by shares outstanding. The Fama-French size factor compares diversified portfolios of smaller and larger companies.
Historically, small stocks delivered a higher compound return in the NYU dataset. Nevertheless, the path included deeper losses, higher volatility, lower liquidity, and greater sensitivity to financing conditions. In addition, the extreme early returns came from portfolios that modern investors could not have purchased as low-cost index funds.
Therefore, historical investment returns for small caps require more implementation context than the final CAGR alone provides.
Long-term U.S. government bonds
Government notes and bonds lend money to the U.S. Treasury. The TreasuryDirect guide explains that notes currently mature in 2, 3, 5, 7, or 10 years, while Treasury bonds mature in 20 or 30 years. Both generally pay interest every six months.
Treasuries carry very low federal credit risk, yet their market prices still move. When interest rates rise, existing fixed-rate bonds usually fall because new bonds offer more attractive yields. Conversely, falling rates can lift bond prices. The SEC explains this inverse relationship in its bulletin on interest rates and fixed-rate bond prices.
Consequently, historical investment returns for bonds reflect both coupon income and changing market prices.
Corporate bonds
Corporate bonds lend money to businesses rather than the federal government. As a result, investors usually demand extra yield for credit risk. Investment-grade issuers tend to offer lower yields, while speculative issuers must compensate buyers for greater default risk.
Bondholders rank ahead of common shareholders in a corporate bankruptcy, but they do not share unlimitedly in a company’s growth. The SEC’s guide to corporate bonds explains these differences as well as maturity and credit-rating categories.
U.S. Treasury bills
Treasury bills are short-term government securities. TreasuryDirect states that current maturities range from 4 to 52 weeks. Bills sell at face value or a discount, and the investor receives face value at maturity.
Because their maturity stays short, bills show little price sensitivity compared with long bonds. However, their income changes as policy rates change. Bills can preserve nominal capital effectively, yet they offer little protection when inflation exceeds their yield.
Residential real estate
Real estate can generate two different returns: price appreciation and housing services or rent. The NYU historical table uses Robert Shiller’s home-price series, which later developed into the Case-Shiller index. Importantly, the downloadable NYU historical returns spreadsheet notes that this measure captures price appreciation and therefore understates total property returns by excluding rent.
Moreover, an owner’s net return depends on maintenance, insurance, property taxes, transaction costs, vacancies, financing, and leverage. Academic research that includes rental income finds a much higher total return. For example, the peer-reviewed study The Rate of Return on Everything, 1870-2015 estimates that housing and equities produced similar average real total returns of roughly 7% across 16 advanced economies, although country results varied.
Gold
Gold does not generate earnings, dividends, or contractual interest. Instead, its return depends on the price another buyer will pay. Investors may use it as a store of value, a currency hedge, or a diversifier during stress.
Long-run comparisons require special care because the United States fixed gold’s official dollar price for much of the twentieth century. The Federal Reserve’s history of Bretton Woods explains that the United States ended dollar convertibility into gold in August 1971. Therefore, a 1928-2025 gold average blends a controlled-price era with a freely traded era.
The distinction became especially visible in 2025. According to the World Gold Council’s full-year commentary, gold returned about 67% in U.S. dollars during that year. Nevertheless, one extraordinary year should not become a permanent return assumption.
Inflation as the essential benchmark
Inflation is not an investable asset, but it sets the minimum hurdle for preserving purchasing power. Historical investment returns need this benchmark before they can describe real wealth. The Consumer Price Index for All Urban Consumers tracks changes in the price of a representative basket. Meanwhile, the BLS historical CPI-U file reports an annual average index of 17.1 in 1928 and 321.943 in 2025.
Consequently, a basket that cost $100 at the 1928 average would cost about $1,883 at the 2025 average. That change equals roughly 3.07% annual inflation across the 97 year-to-year intervals. Although 3% sounds small, compounding multiplied the price level almost nineteenfold.
Historical Investment Returns From 1928 to 2025
The following table updates the classic U.S. comparison through the latest complete calendar year. It uses the cumulative values in Aswath Damodaran’s January 2026 NYU Stern dataset. Its historical investment returns cover 98 annual observations. Finally, the CAGR column converts each ending value into a constant annual compound rate.
| Asset or benchmark | What the series measures | Value of $100 at end of 2025 | Nominal CAGR, 1928-2025 | Central risk |
| U.S. small-cap stocks | Bottom market-cap decile, reinvested return | $6,462,598.52 | 11.97% | Very high volatility, liquidity, and business risk |
| S&P 500 | Large-cap stocks with dividends | $1,157,598.95 | 10.02% | Equity drawdowns and valuation risk |
| Baa corporate bonds | Corporate bond total-return proxy | $53,952.41 | 6.63% | Credit, interest-rate, and liquidity risk |
| Gold | Dollar gold-price change | $21,025.41 | 5.61% | No cash flow, regime sensitivity, and price volatility |
| 10-year U.S. Treasury bond | Constant-maturity government bond return | $7,752.88 | 4.54% | Interest-rate and inflation risk |
| U.S. residential real estate | Home-price appreciation only | $5,626.02 | 4.20% | Local concentration, costs, leverage, and illiquidity |
| 3-month U.S. Treasury bill | Average short-term bill return | $2,578.30 | 3.37% | Reinvestment and inflation risk |
| CPI-U inflation | Change in the consumer price level | About $1,883 for a $100 basket | About 3.07%* | Loss of purchasing power |
*The CPI calculation compares annual-average indexes for 1928 and 2025, which span 97 year-to-year intervals. Meanwhile, the investment table compounds 98 calendar-year returns beginning in 1928. Therefore, the inflation figure provides a close purchasing-power benchmark rather than a perfectly synchronized return series.
What the table says immediately
First, the equity advantage looks enormous because small annual gaps compound for almost a century. The S&P 500 exceeded the Treasury-bill CAGR by about 6.65 percentage points. Yet the ending stock wealth grew to roughly 449 times the bill wealth.
These historical investment returns demonstrate why seemingly modest annual gaps dominate wealth after many decades.
Second, the highest ending value did not describe the easiest experience. Small-cap investors faced repeated collapses that could have forced or frightened them into selling. Therefore, the premium rewarded investors only if they could hold, rebalance, and survive the path.
Third, the real estate number needs context. It excludes rental income but includes a price series, while the stock number reinvests dividends. Consequently, the table does not prove that a complete property investment returned only 4.20%.
Finally, cash-like bills roughly kept pace with inflation before taxes. Their small estimated real gain shows why nominal stability does not equal strong long-term purchasing-power growth.
A global check on the U.S. result
One country and one start date should never carry the whole argument. Fortunately, global historical investment returns point in the same general direction. The UBS Global Investment Returns Yearbook 2026 covers stocks, bonds, bills, inflation, currencies, and gold across 35 markets from 1900 through 2025.
For the United States, UBS reports that $1 invested in equities in 1900 grew to $3,296 in real terms by the end of 2025. In other words, this figure already removes inflation. However, the result also highlights U.S. exceptionalism, so investors should not automatically assign the same past rate to every country or the future.
The 2025 edition adds another useful perspective for the modern period. From 2000 through 2024, global equities produced a 3.5% annualized real return and a 4.3% premium over bills, according to the UBS yearbook summary. Thus, stocks still beat inflation and cash, but their twenty-first-century real return remained below the long U.S. historical average.
What Year-to-Year Historical Investment Returns Reveal
A compound average compresses a violent sequence into one number. However, no investor receives 10.02% from the S&P 500 every December. Actual returns scatter across large gains, ordinary years, and severe losses.
The selected years below come from the same NYU Stern historical return table. They show why each asset can play a different role.
| Year | S&P 500 | Small caps | 3-month bills | 10-year Treasury | Baa corporate bonds | Real estate price | Gold |
| 2008 | -36.55% | -44.68% | 1.40% | 20.10% | -3.44% | -12.00% | 4.32% |
| 2020 | 18.02% | 34.16% | 0.36% | 11.33% | 10.60% | 10.43% | 24.17% |
| 2022 | -18.04% | -22.90% | 2.09% | -17.83% | -15.23% | 5.65% | 0.55% |
| 2023 | 26.06% | 5.19% | 5.28% | 3.88% | 8.74% | 5.68% | 13.26% |
| 2024 | 24.88% | 8.70% | 5.18% | -1.64% | 1.74% | 3.96% | 25.96% |
| 2025 | 17.78% | 16.53% | 4.21% | 7.80% | 6.96% | 1.58% | 66.22% |
These figures appear before investment expenses and taxes. In addition, the real estate column measures price appreciation rather than a landlord’s net total return.
The Great Depression showed the cost of equity risk
The S&P series lost 8.30% in 1929, 25.12% in 1930, and 43.84% in 1931. Consequently, one dollar invested at the start of 1929 fell to roughly thirty-nine cents by the end of 1931 before considering inflation. Small-company stocks suffered an even more destructive sequence.
Deflation partly increased the real value of cash during the early 1930s. Nevertheless, falling prices also accompanied unemployment, bankruptcies, and financial stress. This episode connects economic hardship with investment outcomes.
Inflation in the 1970s separated nominal from real performance
Inflation accelerated during the 1970s, so positive nominal returns did not always preserve purchasing power. Meanwhile, the end of the Bretton Woods system allowed gold to trade more freely in dollars. Gold then rose dramatically, although its later declines reminded investors that an inflation hedge can still carry substantial price risk.
The BLS offers a detailed account of the U.S. price level in One Hundred Years of Price Change. That history explains why real returns matter most when inflation changes regime.
The dot-com bust created a lost period for large caps
The S&P 500 recorded negative total returns in 2000, 2001, and 2002. Specifically, the NYU series reports -9.03%, -11.85%, and -21.97%. Therefore, an investor who entered near the technology peak needed patience even before the 2008 crisis arrived.
At the same time, not every asset followed the same path. Long Treasuries gained in each of those three years, while gold rose strongly in 2002. This divergence demonstrates how diversification can soften a poor equity sequence without eliminating loss.
The 2008 crisis demonstrated classic diversification
During 2008, large-company stocks lost 36.55%, small caps lost 44.68%, and the real estate price series lost 12.00%. By contrast, 10-year Treasuries gained 20.10%, Treasury bills gained 1.40%, and gold gained 4.32%.
The National Bureau of Economic Research dates the associated recession from December 2007 through June 2009. However, markets and the economy did not reach their worst points on the same day. Investors who waited for reassuring economic news could therefore miss part of the market recovery.
Most importantly, 2008 did not prove that bonds always rise when stocks fall. It showed that high-quality government bonds diversified one particular deflationary credit crisis.
The 2020 shock compressed a cycle into months
The NBER dates the pandemic recession from February to April 2020, making it the shortest U.S. recession in its chronology. Nevertheless, the year ended with positive returns across every asset in the selected NYU table.
Stocks recovered quickly, 10-year Treasuries benefited from falling yields, and gold gained 24.17%. Therefore, an annual table hides the intense drawdown and rebound that occurred inside the year. Monthly or daily data would show far more risk than the positive calendar result suggests.
The 2022 selloff challenged the usual stock-bond pattern
In 2022, the S&P 500 lost 18.04% and 10-year Treasuries lost 17.83%. Corporate bonds also fell 15.23%. Consequently, a traditional stock-and-bond portfolio suffered because inflation and rising rates pressured both sides.
The mechanism was straightforward. As the Federal Reserve tightened policy, market yields increased and older low-coupon bonds lost value. FINRA explains that longer-duration bonds react more strongly to rate changes in its guide to bond duration.
Meanwhile, annual-average CPI inflation reached 8.0% in 2022, according to the BLS historical CPI data. Bills produced a positive nominal return, but they still lost purchasing power.
The 2023-2025 period rewarded different leaders
Large U.S. stocks rebounded in 2023 and 2024, while small caps lagged. Then small caps strengthened in 2025. Gold, meanwhile, gained 25.96% in 2024 and roughly 66% in 2025.
However, recent leadership can encourage performance chasing. The unusually strong gold result lifted its 98-year CAGR, yet that one observation does not guarantee another similar year. Likewise, two powerful stock years do not remove equity risk.
Why Higher Historical Investment Returns Required More Risk
Risk means more than volatility. Ultimately, risk describes the possibility that an investment outcome prevents someone from meeting a financial goal. That outcome could involve a permanent loss, an untimely drawdown, inadequate purchasing power, illiquidity, or an emotional decision during stress.
FINRA summarizes the central relationship clearly: assets with higher potential returns generally require investors to accept greater uncertainty. Still, it also warns that stocks do not become riskless merely because someone holds them for a long time in its risk education guide.
Volatility measures dispersion, not every danger
Standard deviation measures how widely returns moved around their average. A higher number usually indicates a less predictable one-period result. Therefore, small-cap stocks normally show more volatility than large-company stocks, while Treasury bills show far less.
However, volatility treats gains and losses as deviations. Most investors welcome a sudden gain but fear a sudden loss. Consequently, downside measures such as maximum drawdown can communicate lived risk more directly.
Drawdown measures the fall from a peak
A drawdown compares a portfolio’s current value with its previous high. For example, a decline from $100,000 to $70,000 equals a 30% drawdown. The portfolio then needs a 42.9% gain to recover.
Drawdown duration matters as well. A quick decline followed by a rapid rebound creates a different challenge from a decade of weak real returns. Therefore, investors should examine both depth and time underwater.
Sequence risk connects market losses to cash needs
Two investors can earn the same average market returns but experience different outcomes if they add or withdraw money at different times. For a saver, a decline early in the journey may create an opportunity to buy more shares. In contrast, a retiree who sells after the same decline locks in losses and leaves less capital for a recovery.
Consequently, time horizon means more than age. Investors should also consider when they need cash, how flexible the spending goal remains, and whether other income can cover a downturn.
Market risk affects nearly every security
Recessions, policy changes, and broad shifts in risk appetite can move an entire market. Diversification cannot remove this systematic risk. Nevertheless, it can prevent one company, sector, or country from determining the whole result.
Concentration risk can hide inside a winning index
A broad index can depend heavily on a small group of exceptional companies. Hendrik Bessembinder’s peer-reviewed research, summarized by Arizona State University’s W. P. Carey School of Business, found that the best-performing 4% of U.S. listed companies explained the market’s net wealth creation over Treasury bills from 1926 through 2016. The remaining 96% collectively matched bills.
Therefore, the strong historical return of the stock market does not imply that most individual stocks delivered the market average. Instead, broad ownership increased the chance of holding the relatively few enormous winners.
Interest-rate risk affects bonds and other long-duration assets
When market rates rise, fixed-rate bond prices usually fall. Longer duration magnifies that sensitivity. Thus, a Treasury bond can carry little default risk and still produce a large annual loss.
Moreover, rate changes affect assets beyond bonds. High-duration growth stocks and highly valued real estate can also struggle when discount rates rise. The channels differ, but the underlying present-value logic remains similar.
Credit risk distinguishes corporate bonds from Treasuries
A corporate issuer can delay or fail to make promised payments. Investors therefore demand a credit spread over comparable government debt. During stress, that spread can widen at the same time Treasury yields fall, which explains why corporate and government bonds may perform differently.
In addition, lower-rated bonds often move more like stocks during recessions. They can improve income, but they may provide less crisis diversification than their bond label suggests.
Inflation risk threatens cash and fixed payments
Inflation reduces the purchasing power of money and nominal coupon payments. Consequently, a bill, certificate of deposit, or fixed-rate bond can deliver a positive dollar return but a negative real return.
Treasury Inflation-Protected Securities address part of this problem. TreasuryDirect explains that TIPS principal adjusts with CPI, while the securities pay interest every six months. However, TIPS market prices still react to changes in real yields before maturity.
Liquidity risk changes the price of an exit
An asset may look stable when trades occur infrequently. Yet an owner who needs cash quickly might accept a large discount. Small stocks, individual corporate bonds, private assets, and real estate can all create this problem.
Therefore, an emergency reserve and a realistic spending plan can protect an investor from becoming a forced seller. Liquidity itself may offer a lower expected return, but it provides valuable flexibility.
Currency and country risk matter outside the United States
International assets add exposure to foreign economies, laws, currencies, and political systems. Exchange-rate movements can increase or reduce a U.S. investor’s return even when the local asset price does not change.
Nevertheless, international diversification can reduce dependence on one national market. The benefit will vary by period because correlations rise and fall.
| Risk type | Assets with notable exposure | What can help manage it |
| Equity market risk | Large caps, small caps, REITs | Diversification, time, and a suitable stock allocation |
| Interest-rate risk | Long bonds, bond funds, rate-sensitive equities | Shorter duration, maturity matching, and diversification |
| Credit risk | Corporate and high-yield bonds | Issuer diversification and higher credit quality |
| Inflation risk | Cash, bills, nominal bonds | Real assets, TIPS, growth assets, and shorter repricing periods |
| Liquidity risk | Real estate, microcaps, some bonds, private assets | Liquid reserves and position-size limits |
| Concentration risk | Individual stocks, sectors, one country, one property | Broad funds and exposure limits |
| Sequence risk | Any volatile portfolio funding withdrawals | Cash-flow planning, flexible spending, and balanced assets |
| Currency risk | Foreign stocks and bonds | Geographic diversification or selective hedging |
What Historical Investment Returns Say About Each Asset
Historical investment returns do not identify one universally best asset. Instead, each category solved a different problem, and its weakness often funded its expected reward.
Stocks drove long-term growth
Businesses can raise prices, introduce products, reinvest profits, and expand into new markets. Therefore, equity returns can grow with the economy and corporate productivity. Dividends also matter: S&P Dow Jones Indices estimates that dividends contributed about 31% of S&P 500 total return since 1926 in its research on the importance of stable dividends.
However, shareholders receive only the residual value after a company pays employees, suppliers, lenders, and taxes. That junior position helps explain both the upside and the risk.
Small caps expanded the opportunity set
Small companies can grow faster from a low base, and their shares may carry a return premium for risk or neglect. Nevertheless, the category also contains fragile businesses, limited analyst coverage, and securities with thin trading.
The French Data Library constructs its size portfolios with transparent market-equity breakpoints. Still, the historical small-cap premium varies across eras. Therefore, an allocation should rest on diversification and risk tolerance rather than certainty that small companies must outperform.
Government bonds supplied income and crisis defense
Treasuries often gained when growth weakened and rates fell. That pattern helped in 2000-2002, 2008, and 2020. In addition, known maturity dates can support future spending when an investor holds individual securities to maturity.
Nevertheless, 2022 exposed their interest-rate risk. A long bond fund has no promise that its market value will equal the original investment on a particular withdrawal date.
Corporate bonds traded safety for extra yield
Corporate bonds historically returned more than Treasuries in the NYU table. The additional yield compensated investors for defaults, downgrades, liquidity, and spread volatility.
However, the category sits between government debt and equities. It can diversify some stock risk, but its credit exposure often becomes more visible during recessions.
Treasury bills protected near-term spending
Bills produced the lowest compound investment return in the table, yet they offered the steadiest nominal path. Therefore, they can serve goals that require principal soon, emergency reserves, or temporary portfolio liquidity.
Their weakness appears over decades. After inflation and taxes, a bill investor may achieve little or no real growth. Consequently, cash can solve short-term risk while creating long-term purchasing-power risk.
Gold offered regime diversification
Gold has sometimes performed well during inflation, dollar weakness, geopolitical fear, or falling real rates. Its 2025 surge provides a recent example. However, gold also endured long stretches of weak real performance and produces no cash flow.
Therefore, gold’s portfolio case rests more on diversification than on maximizing expected compound wealth. Investors should also distinguish physical bullion, futures, mining stocks, and gold-backed funds because each adds different costs and risks.
Real estate combined consumption, income, and leverage
A primary home provides shelter, so its value extends beyond an investment return. Meanwhile, a rental property can generate income and offer control over operations. Leverage may amplify gains when prices rise.
By contrast, the same leverage magnifies losses and creates fixed payment obligations. Furthermore, local concentration, maintenance, insurance, taxes, and selling costs can separate gross appreciation from net return.
The global housing research cited earlier includes rental income and creates a more balanced comparison with dividend-paying stocks. Even then, personal property outcomes can differ sharply from a diversified national index.
Diversification: The Central Lesson From Historical Investment Returns
Diversification cannot guarantee a profit or prevent every loss. Still, it reduces dependence on a single forecast. The SEC’s asset-allocation guide recommends spreading money both across asset classes and within each category.
Diversify across economic drivers
Stocks benefit from business growth, while high-quality bonds can benefit from falling rates. Bills provide liquidity, TIPS respond to realized inflation, and global assets add exposure to different economies. Because these return drivers differ, combining them can create a more resilient path.
However, relationships change. Stocks and bonds both fell in 2022, so one historical correlation should not become a permanent law. Robust diversification uses several sources of return and keeps expectations modest.
Diversify within the stock allocation
Owning many shares does not ensure diversification if every company belongs to the same sector or country. Conversely, one broad fund can provide more diversification than several overlapping thematic funds.
Bessembinder’s findings strengthen this point. Since a small minority of stocks created most market wealth, broad exposure reduced the risk of missing the biggest winners.
Diversify within fixed income
Bond portfolios differ by maturity, duration, issuer, credit quality, inflation protection, and currency. Therefore, a long-term corporate bond fund does not provide the same stability as a ladder of near-term Treasuries.
Matching maturities to known spending dates can reduce uncertainty. Meanwhile, a mix of nominal Treasuries and TIPS can address both disinflationary and inflationary outcomes.
International diversification reduces one-country dependence
The United States produced exceptional long-run equity wealth. Nevertheless, today’s winner was not guaranteed in 1900, and present market leadership does not settle the next century.
International exposure distributes risk across currencies, political systems, industries, and economic cycles. However, it can lag for long periods, so investors need a durable reason to hold it.
Rebalancing restores the chosen risk level
Strong assets gradually occupy more of a portfolio. As a result, an investor can become more aggressive without making an explicit decision. Rebalancing sells or redirects contributions away from overweight assets and toward underweight ones.
Investor.gov explains that some investors rebalance every six or twelve months, while others use allocation bands in its discussion of rebalancing approaches. In either case, the purpose is risk control, not market prediction.
Taxes and transaction costs matter before any sale. Therefore, new contributions and distributions can often rebalance an account with less friction.
How to Use Historical Investment Returns in a Real Plan
The best use of historical investment returns starts with a goal, not an asset forecast. A retirement portfolio, emergency reserve, home down payment, and multigenerational endowment require different balances of growth and stability.
Start with the spending date
Money needed next year cannot recover from a multiyear bear market on command. Therefore, near-term obligations generally require more liquid and stable assets than distant goals.
By contrast, money with a flexible, multi-decade horizon may tolerate more equity risk. However, an investor’s practical horizon can shorten because of unemployment, illness, family needs, or changing plans. A written liquidity reserve can protect the long-term portfolio from these surprises.
Separate ability, willingness, and need to take risk
Risk capacity describes how much loss a financial plan can absorb. Tolerance describes how much volatility a person can endure without abandoning the plan. Finally, risk need asks how much return the goal actually requires.
These three measures can conflict. For example, a young investor may have high capacity but low emotional tolerance. Conversely, a retiree may feel comfortable with volatility but lack the capacity to replace a severe loss.
Use return ranges instead of one precise forecast
A 10.02% historical S&P 500 CAGR does not justify entering 10.02% into every financial plan. Starting valuations, dividend yields, inflation, and future earnings growth can produce a different result. In addition, a planning model should distinguish expected return from a conservative return assumption.
Therefore, test at least three paths: a weak case, a central case, and a strong case. More importantly, include adverse sequences rather than applying the same return every year.
Convert every assumption into real terms
A nominal target can create false confidence when the goal itself rises with inflation. If college, housing, healthcare, or retirement expenses grow faster than the assumed return, the account may gain dollars while losing ground.
Consequently, either inflate the future spending goal or model returns after inflation. Do not subtract inflation twice.
Match the benchmark to the investment
Comparing a small-cap value fund with the S&P 500 can confuse style exposure with manager skill. Likewise, comparing a short-term bond fund with long Treasuries ignores duration.
FINRA recommends evaluating investments against similar benchmarks in its guide to investment return calculations. Therefore, match asset class, geography, maturity, credit quality, and return type whenever possible.
Deduct fees from the return that reaches the investor
Index histories usually show gross or benchmark returns. Actual funds charge expenses, and advice or account services may add more costs. Although a 1% annual fee looks small, it compounds every year and reduces the capital that can earn future returns.
The SEC illustrates this effect with a $100,000 portfolio earning 4% annually for 20 years. In its 2025 bulletin on investment fees and expenses, the ending values equal approximately $208,000 with a 0.25% annual fee, $198,000 with a 0.50% fee, and $179,000 with a 1.00% fee.
Therefore, investors should compare expense ratios, advisory fees, trading costs, bid-ask spreads, loads, and account charges. Low cost cannot guarantee success, but a fee saved becomes a return retained.
Consider taxes without assuming one universal rate
Interest, dividends, and realized capital gains can receive different tax treatment. Account type, holding period, income, jurisdiction, and security type all matter.
For example, the IRS notes that interest from Treasury bills, notes, and bonds faces federal income tax but receives exemption from state and local income taxes in Topic No. 403. Meanwhile, IRS Publication 550 explains the federal treatment of investment income and expenses for taxable accounts.
Tax-advantaged retirement accounts follow separate rules. Consequently, do not present a pre-tax benchmark return as a universal after-tax personal result.
Stress-test the portfolio against actual bad years
A useful plan asks what would happen if stocks repeated 2008, if stocks and bonds repeated 2022, or if inflation stayed high while nominal assets lagged. Then it checks whether the investor could fund expenses and remain invested.
Moreover, a stress test should include personal shocks. A market decline becomes more dangerous when it coincides with job loss, medical costs, or a forced home sale.
Revisit the plan, not every headline
Market history includes events that once felt unprecedented. Yet constant reaction can turn volatility into permanent underperformance through late buying and panic selling.
The SEC’s bulletin on behavioral patterns of U.S. investors identifies active trading, performance chasing, familiarity bias, manias, panics, and inadequate diversification as behaviors that can undermine results. Therefore, reviews should focus on goals, allocation drift, costs, taxes, and life changes rather than daily predictions.
Practical Calculations Using Historical Investment Returns
Concrete calculations show how small differences become large outcomes. However, these examples remain hypothetical and omit taxes, fees, and variable yearly returns.
Future value from a constant compound return
The standard equation is:
[
\text{Future value} = \text{Initial investment} \times (1+r)^n
]
Suppose $10,000 compounds for 30 years. Ending values change dramatically as the rate changes.
| Constant annual return | Value after 30 years |
| 3% | $24,273 |
| 5% | $43,219 |
| 7% | $76,123 |
| 9% | $132,677 |
| 10% | $174,494 |
Thus, a few percentage points can determine most of the final wealth. Nevertheless, real markets do not deliver a constant rate, so the table illustrates compounding rather than a forecast.
Purchasing power after inflation
If a portfolio grows at 7% while inflation averages 3%, its exact real rate equals approximately 3.88%.
[
\frac{1.07}{1.03}-1 \approx 3.88%
]
Consequently, $10,000 growing at 7% for 30 years becomes about $76,123 in future dollars. In today’s purchasing power under 3% inflation, it equals roughly $31,400.
Income changes total return
Imagine that a stock begins at $50, ends at $52, and pays a $2 dividend. Its price return equals 4%, but its total return equals 8% before taxes and fees.
[
\frac{52-50+2}{50}=8%
]
Therefore, a price-only chart would report only half of the investor’s return. The same principle applies to bond coupons and property rent.
Volatility reduces compound wealth
Consider two investments with a 10% arithmetic average:
| Investment | Year 1 | Year 2 | Arithmetic average | Ending value of $100 |
| Smooth path | 10% | 10% | 10% | $121 |
| Volatile path | 40% | -20% | 10% | $112 |
Both paths share the same arithmetic average. However, the volatile path produces less wealth because the loss applies to a changed base. This difference explains why CAGR and sequence deserve attention.
Common Mistakes When Reading Historical Investment Returns
Historical investment returns can educate, but careless comparisons can also mislead. The following mistakes appear frequently in articles, sales material, and social media posts.
Mistake 1: Using price return instead of total return
Price return ignores dividends, interest, or rent. Consequently, it understates assets that distribute meaningful income. Always verify whether the data assume reinvestment.
Mistake 2: Calling an arithmetic average a compound return
Arithmetic averages do not describe ending wealth across volatile years. Therefore, use CAGR for a multiyear investment experience and reserve arithmetic averages for one-period statistical analysis.
Mistake 3: Ignoring inflation
Nominal dollars can rise while purchasing power falls. For that reason, every long-horizon comparison should include CPI or another suitable inflation measure.
Mistake 4: Comparing gross and net returns
An index does not pay a personal advisory fee, owe an investor’s taxes, or suffer every trading friction. Conversely, a real account does. Therefore, subtract realistic costs before using a benchmark in a plan.
Mistake 5: Cherry-picking dates
Starting at a crash bottom flatters the next period, while starting at a bubble peak depresses it. A more honest analysis uses several market cycles and rolling periods.
Mistake 6: Treating every dataset as directly comparable
The NYU stock series includes dividends, while its housing series excludes rent. In addition, gold operated under a controlled-price regime before 1971. These methodology differences can change the conclusion.
Mistake 7: Forgetting that the S&P 500 changed over time
The modern S&P 500 launched in 1957, and its constituents evolve. Companies enter and leave as the economy changes. Thus, the index is a dynamic rules-and-committee-based portfolio rather than a fixed list of the same businesses.
Mistake 8: Applying an index return to an individual stock
The broad market’s success came from a skewed distribution of company results. Since a small minority of stocks created most net wealth, a concentrated portfolio may fall far short of the index.
Mistake 9: Assuming bonds cannot lose money
Credit quality does not eliminate duration risk. The 17.83% loss for the 10-year Treasury proxy in 2022 provides a direct counterexample.
Mistake 10: Assuming cash has no risk
Treasury bills can preserve nominal value, yet inflation can reduce what the proceeds buy. Therefore, cash solves volatility and liquidity problems but not every long-term problem.
Mistake 11: Treating a recent winner as a permanent leader
Asset-class leadership rotates. Gold’s exceptional 2025, large-cap strength in 2023-2024, and small-cap leadership in earlier decades arose under different conditions. Performance chasing buys the past, not the future.
Mistake 12: Believing diversification must work every year
Diversification improves the range of possible portfolio outcomes rather than guaranteeing a positive return each year. Stocks and bonds can decline together, as they did in 2022.
Mistake 13: Confusing a backtest with a live investment
Backtests apply current rules to earlier data and may benefit from cleaner information than investors possessed at the time. Moreover, taxes, liquidity, and trading technology changed. Therefore, hypothetical history deserves an extra margin of caution.
Mistake 14: Overlooking survivorship bias
A database that keeps only surviving funds or companies will overstate success. CRSP built its Survivor-Bias-Free U.S. Mutual Fund Database to preserve inactive funds and address this problem. Investors should ask whether failed investments remain in any historical sample.
Mistake 15: Turning historical data into individualized advice
The highest-return asset may not fit the investor’s cash needs, tax situation, legal restrictions, or emotional tolerance. Consequently, personal suitability matters more than winning a historical ranking.
A Historical Investment Returns Checklist for Investors
Use this checklist before applying historical investment returns to a portfolio decision.
In short, historical investment returns work best as a planning reference when every assumption remains transparent and testable.
- Define the goal. State the amount, currency, spending date, and flexibility.
- Build a liquidity reserve. Protect the long-term portfolio from forced sales.
- Choose nominal or real analysis. Keep the return and goal in the same units.
- Verify total return. Include dividends, interest, rent, and distributions where appropriate.
- Check the date range. Use full cycles and avoid a convenient start or finish.
- Read the index methodology. Confirm constituents, weighting, rebalancing, and launch date.
- Match the benchmark. Compare like with like across size, region, duration, and credit quality.
- Estimate fees and taxes. Focus on the return the investor can retain.
- Model several scenarios. Include weak returns, high inflation, and early losses.
- Diversify deliberately. Spread exposure across securities and economic drivers.
- Set a rebalancing rule. Use a calendar or allocation bands instead of emotion.
- Document the reason for each asset. Growth, income, liquidity, inflation protection, or diversification should have a clear purpose.
- Review after life changes. A new job, home, child, illness, or retirement can change risk capacity.
- Avoid unsupported certainty. Historical averages define context, not a guaranteed destination.
Historical Investment Returns FAQ
What is the average historical return of the S&P 500?
According to the NYU Stern series, the S&P 500 turned $100 at the start of 1928 into about $1.158 million by the end of 2025, including dividends. That ending value implies a nominal CAGR of approximately 10.02%. However, an actual investor would receive less after fund expenses, taxes, and trading costs.
What is a realistic stock market return assumption?
No single rate works for every plan. Historical U.S. large-cap returns near 10% provide context, but future returns may differ because valuations, inflation, and earnings growth change. Therefore, prudent planning uses a range and includes weaker sequences.
Which asset had the highest historical investment returns?
The bottom-decile U.S. small-cap portfolio had the highest ending wealth in the 1928-2025 NYU comparison. Its CAGR reached about 11.97%. Nevertheless, it also carried greater volatility, liquidity problems, and implementation costs, especially in early decades.
Why did stocks beat Treasury bills over the long run?
Stockholders accepted business risk, uncertain dividends, deep drawdowns, and a junior claim on corporate assets. Therefore, markets historically compensated diversified equity investors with a risk premium. Bills offered much more stable nominal results, so their long-run return stayed lower.
Are bonds safer than stocks?
Bonds generally fluctuate less than stocks, but the answer depends on issuer, maturity, duration, credit quality, inflation, and holding period. A short Treasury bill and a long high-yield corporate bond have very different risks. Moreover, the 2022 record shows that long Treasuries can lose substantially when rates rise.
Can Treasury bills lose money?
An investor who holds a U.S. Treasury bill to maturity receives its face value, subject to federal government payment. However, inflation can exceed the bill yield and create a negative real return. Reinvestment rates can also fall when each bill matures.
Does gold protect against inflation?
Gold has protected purchasing power across some long periods and performed strongly in several inflationary or crisis environments. Nevertheless, the relationship does not hold every year, and gold produces no cash flow. The pre-1971 fixed-price regime also complicates century-long comparisons.
Why does real estate look weak in the NYU table?
That series measures home-price appreciation and excludes rental income or the housing service an owner receives. Consequently, it does not represent a property’s complete total return. Net property results must also deduct maintenance, insurance, taxes, vacancies, financing, and transaction costs.
What was unusual about 2008?
The S&P 500 lost 36.55%, while small caps lost 44.68% in the NYU data. By contrast, 10-year Treasuries gained 20.10%, bills gained 1.40%, and gold gained 4.32%. Therefore, high-quality government bonds provided strong diversification during that credit crisis.
What was unusual about 2022?
Stocks and long bonds fell together. The S&P 500 lost 18.04%, while the 10-year Treasury proxy lost 17.83%. Inflation and rapid rate increases hurt both asset categories, so the year challenged assumptions based only on the 2008 pattern.
Why are percentage returns more useful than dollar returns?
Percentage returns adjust for the initial investment size. As a result, they allow fair comparisons between a small position and a large one. Dollar returns remain useful for measuring the actual effect on personal wealth.
What is the effective annual return?
The effective annual return converts a holding-period gain into an equivalent one-year compound rate. For a multiyear period, use ((1+HPR)^{1/n}-1). Thus, a 7.5% total return over three years equals about 2.44% a year.
Is a 10% gain followed by a 10% loss equal to zero?
No. A $100 investment rises to $110 and then falls 10% to $99. Consequently, the total loss equals 1%. The example illustrates volatility drag and the importance of geometric returns.
How often should a portfolio rebalance?
No universal schedule fits every investor. Investor.gov notes that some people rebalance every six or twelve months, while others act when an asset crosses a predetermined allocation band. Costs, taxes, account type, and portfolio size should influence the rule.
Do historical investment returns include taxes and fees?
Benchmark tables usually exclude personal taxes, advisory charges, and many trading costs. Therefore, investors should treat them as market histories rather than take-home results. Fund documents and account disclosures provide the costs needed for a more realistic estimate.
Final Lessons From Historical Investment Returns
Historical investment returns show that wealth creation and uncertainty arrived together. U.S. stocks produced far more long-run wealth than bills, and small caps produced even more in the academic record. However, those gains required investors to withstand crashes, changing leaders, and long stretches of doubt.
Meanwhile, bonds, bills, gold, and real estate solved different problems. Treasuries sometimes protected portfolios during recessions, bills supplied liquidity, gold diversified monetary regimes, and housing combined appreciation with shelter or rent. None of them won under every condition.
Therefore, the most durable lesson is not to buy the asset with the highest row in a historical table. Instead, investors can use the record to choose an affordable level of risk, diversify across imperfect return sources, control fees and taxes, rebalance deliberately, and protect near-term spending. History cannot reveal the next winner, but it can help build a plan that does not require perfect foresight.
Historical Investment Returns Methodology and Sources
- The U.S. return table uses Aswath Damodaran’s Historical Returns on Stocks, Bonds and Bills, updated January 5, 2026, with calendar-year observations through 2025.
- CAGR calculations use the published ending values for $100 invested at the start of 1928 and 98 annual return observations through 2025.
- The S&P 500 column includes dividends. Meanwhile, the small-cap column represents the bottom market-cap decile. The real estate column tracks price appreciation and excludes rental income.
- CPI figures come from the U.S. Bureau of Labor Statistics historical CPI-U dataset. The inflation CAGR compares annual-average CPI values for 1928 and 2025.
- Finally, the global comparison comes from the UBS Global Investment Returns Yearbook 2026 and the academic Rate of Return on Everything dataset.
- Definitions and practical guidance come from Investor.gov, FINRA, TreasuryDirect, and the Internal Revenue Service.
Editorial note: Data providers may revise historical series, methodologies, or recent values. Check the linked primary source before republishing a time-sensitive figure.
