Here’s the average stock market return over the past 10 years

The US stock market is the largest stock market in the world, accounting for 43% of the $106 trillion global stock market last year. US stocks have created significant wealth over time, something Warren Buffett attributes to a unique combination of trading and innovation. Currently, 17 of the 20 largest companies in the world are American companies.

The US stock market is divided in different ways, but its performance is primarily measured by three main financial indicators: Standard & Poor’s 500 (^GSBC 1.23%)the Dow Jones Industrial Average (^ DJI 1.05%)and the Nasdaq Composite (^ xix 1.70%).

These indices have some stocks in common, but investors view them differently. Read on to see how the three indices have performed over the past decade as of January 15, 2024.

Standard & Poor’s 500

The modern S&P 500 was launched in 1957, but its roots go back to the predecessor index created in 1923. The S&P 500 measures the performance of 500 large U.S. companies representing a mix of value and growth stocks. The index represents about 80% of domestic stocks by market capitalization, so it is widely considered the best benchmark for the entire U.S. stock market.

Here are the details of the five largest components of the S&P 500:

1. Microsoft: 7.1%
2. apple: 6.8%
3. the alphabet: 3.9%
4. Amazon: 3.5%
5. Nvidia: 3.3%

The S&P 500 has returned 163% over the past decade, compounded at 10.2% annually. Investors can get direct exposure to the index through Vanguard S&P 500 ETF (NYSEMKT:VOO). Warren Buffett often recommended this strategy because very few investors manage to outperform the S&P 500. This includes professional money managers. In fact, less than 15% of all large-cap funds have outperformed the S&P 500 over the past decade.

Dow Jones Industrial Average

The Dow Jones Industrial Average measures the performance of thirty large US companies, all of which are typically included in the Standard & Poor’s 500 index. Selection is limited to companies that meet three criteria: excellent reputation, sustainable earnings growth, and widespread interest among investors. For this reason, the Dow Jones Index is usually considered a benchmark for blue-chip stocks.

Here’s a breakdown of the five largest components of the Dow Jones Index:

1. United Health Group: 9.4%
2. Microsoft: 6.7%
3. Goldman Sachs: 6.6%
4. Home Depot: 6.2%
5. Amgen: 5.3%

The Dow Jones Index has returned 131% over the past decade, compounding at a rate of 8.7% annually. Investors can get direct exposure to the index through SPDR Dow Jones Industrial Average ETF (NYSEMKT: DIA). While the index has underperformed the S&P 500 over the past decade, it has also been less volatile than the S&P 500 due to the composition of its blue-chip stocks.

Nasdaq Composite

The Nasdaq Composite Index measures the performance of more than 3,000 companies, all of which trade on the Nasdaq exchange. The vast majority of its constituents are US companies, although the index provides a small amount of international exposure. The Nasdaq is heavily skewed toward high-growth technology and consumer discretionary sectors, and is typically considered a benchmark for growth stocks.

Here is a breakdown of the five largest components of the Nasdaq index:

1. apple: 12.3%
2. Microsoft: 11.5%
3. the alphabet: 6.7%
4. Amazon: 6.5%
5. Nvidia: 5.1%

The Nasdaq has returned 264% over the past decade, compounded at 13.8% annually. Investors can get direct exposure to the index through… Fidelity Nasdaq Composite Fund (Nasdaq: ONEQ). As a caveat, while the index has outperformed the S&P 500 over the past decade, it has also been more volatile than the S&P 500 because of its highly concentrated composition.

Patience is the key to making profit in the stock market

Investors can learn an important lesson by analyzing historical stock market returns. All three major financial indexes have suffered multiple corrections and two bear markets over the past decade, but the S&P 500 and Dow Jones have more than doubled in value, and the Nasdaq has more than tripled in value.

To make comparisons easier, I’ve broken down the returns across all three indices in the chart below.

Data source: YCharts. Chart by author. As of January 15, 2024.

Here’s the bottom line: The three major U.S. stock market indices have been profitable investments over the past decade, and investors have no reason to expect different results over the next decade. This means that any of the index funds discussed above are likely to be money-making investments over the next 10 years (and beyond).

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Susan Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Trevor Genuine has positions in Amazon, Nvidia, and the Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Goldman Sachs Group, Home Depot, Microsoft, Nvidia, and the Vanguard S&P 500 ETF. The Motley Fool recommends Amgen and UnitedHealth Group. The Motley Fool has a disclosure policy.