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Investing markets can be difficult to understand, as there is so much information to sort through. Fortunately, you don’t need to understand every concept or piece of data to be successful as an investor.
A few important, simple and often surprising investment statistics can guide your choices and make you a better investor in the long run. Here are some worth considering.
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1. Annual Return of the S&P 500 (10% Per Year)
The stock market has been a consistent way of building wealth over the past 100 years. Similarly, between April 1, 1936 and March 31, 2024, the S&P 500 Index – a widely followed barometer for the broad US stock market – averaged an annual return of 10.75%.
To put that return into perspective, if you earn 10% a year on your savings, and your returns compound quarterly, you’ll double your money roughly every seven years. Put $20,000 into an S&P 500 fund today, and if you earn the historical return of 10% per year, you’ll have $40,000 in about seven years.
Of course, the stock market is unpredictable and goes through swings. Your portfolio may go down some years and go up more than 10% in others. The key takeaway is that the stock market posts significant average annual returns over time.
2. Average Annual Inflation Rate (3.8% Per Year)
Inflation is another reason why investing is essential. When prices go up, the purchasing power of each of your dollars goes down. US inflation has averaged 3.8% percent per year from 1960 to 2022. If you’re not earning at least that much on your money, it’s losing value. Your balance may stay the same in a bank account, but it buys less and less, making you poorer.
Investments such as stocks historically outperform inflation. By investing some of your money in stocks and mutual funds, your savings and spending power can keep up with rising prices.
3. Number of Active Day Traders Who Lose Money (80%)
Using an index fund, you can often match the performance of the entire S&P 500 and various major stock markets. This is different from buying and selling – or trading – individual stocks. Trading individual stocks can be exciting when it succeeds, sometimes leading to sudden short-term gains, but making consistent profits is very difficult.
In fact, 75% of day traders who try to invest professionally give up within two years, and 80% of their trades are unprofitable, according to a study by the University of Berkeley. And individual stock day traders working through a taxable account often generate short-term capital gains, which are taxed at higher ordinary income rates than long-term capital gains. Day traders can also trigger a lot of investment fees. Also, as a day trader you compete against the best professional investors on Wall Street, many of them backed by large research teams.
Most regular investors are better off using mutual funds and exchange-traded funds, or ETFs, which aim to match the stock market instead. It’s less exciting but still profitable in the long run.
4. Index Fund Cost vs. Mutual Fund for a $1 Million Portfolio ($1,200 vs. $6,000 Per Year)
If you are trying to choose an investment fund, consider the cost. An index fund keeps costs low by trying to mimic the performance of a specific part of the market. The S&P 500 is one. It includes 500 of the largest companies listed on US stock exchanges. The Nasdaq 100 includes stocks issued by 100 of the largest non-financial businesses listed on the Nasdaq stock exchange.
Many index funds track each of those groups. Their costs are generally kept low because they don’t have to pay for lots of investors, analysts and software wizards to find stocks. In contrast, actively managed funds pay for talented people who can pick better performing stocks. Those costs are passed on to shareholders like you.
Index funds, on average, charge 0.12% per year compared to the 0.60% charged by active investment funds. That means on a $1 million portfolio, you’d pay $1,200 a year for an index fund versus $6,000 a year for an active fund.
Despite raising significantly more, 79% of active funds, which sought to earn higher returns, underperformed the S&P 500 in 2021. You often pay extra fees for actively managed funds without getting any returns extra in return.
5. Average Duration of a Bear Market (14 Months)
One downside to investing is that your returns are not guaranteed. In some years you will earn a lot. In others, your portfolio could lose money. It’s not fun to lose money, but during this time, remind yourself that the market will eventually turn around.
The average historical bear market, a period when stocks lose value, has lasted 14 months. On the other hand, the average historical bull market, when stocks rise in value, has lasted five years.
The market will go through cycles of gains and losses. Remember that the positive stretches last longer than the negative ones.
6. The Number of ‘Best Investing Days’ That Can Turn a Portfolio Positive Negative If Lost (20 Days Over Two Decades)
When the market crashes, you may feel tempted to cash out and wait until things start to pick up again. This is one of the most expensive mistakes investors make.
Why is that? Because so much of the stock market’s long-term gains come from one-day gains. Sometimes the market shoots up 5%, 7% or even 10% in one day. Those days are impossible to predict. And they often happen at the start of a rally.
Individual retail investors often miss out on those explosive, unexpected gains because they cashed out or moved into bonds in the middle of an earlier market downturn.
The JPMorgan report found that if investors missed the 10 best days of investing over a two-decade period between January 1999 and December 2018, that would cut their portfolio’s returns in half. If investors missed the best 20 investment days, their returns turned negative, meaning they lost money over that two-decade period. Don’t try to time the market. Stay invested for the long term to get the best results.
7. The Monthly Investment Needed to Reach $1 Million If You Start at 25 vs. Age 45 ($350 vs $1,650)
The earlier you start investing, the more time you have to build wealth. This makes it easier to reach your long-term financial goals.
Say you want $1 million in your nest egg for retirement at age 67. You expect to earn 7% a year, a reasonable return for a portfolio of stocks and bonds. If you start at age 25, you would need to save about $350 a month. If you start at age 45, you must save about $1,650 a month.
If you’re still early in your career, consider ways to save more money. Even a little extra today will make it easier to reach your financial goals in the future. Don’t be discouraged if you are later in your career. You may wish you had started earlier, but anything you put aside now will help you in retirement. As the saying goes, the best time to start may have been years ago, but the second best is now.
8. Number of People With a Workplace Retirement Scheme (44%)
A workplace retirement plan, such as a 401(k), can help you invest. Those plans let you save money and defer annual tax on growth in your investments in your account. With a traditional 401(k), you also get a tax deduction for the money you put into your account. In most cases, your employer also contributes to your account.
Only 44% of American workers have access to a workplace retirement plan. If you have one, study how it works to take full advantage.
The majority of employees, 56%, do not have a retirement plan in their job. Consider an individual retirement account, or IRA, if you’re in that situation. It offers similar tax advantages for your retirement savings and investment goals.
9. Life Expectancy of Males and Females Turning 65 (82 and 85 Years)
The main reason for investing is to save for retirement. And retirement may last much longer than expected. The typical man who turns 65 today is expected to live to 82, while women are expected to live to 85, according to the Social Security Administration.
That’s a retirement that lasts almost two decades on average. Some people will live even longer, reaching 90, 100 or even older. That’s why regular saving and investing is important—to build additional savings to fund your retirement lifestyle.
10. Average Baby Boomer 401(k) Balance ($230,900)
He measured the fidelity of the average 401(k) balance by the age of his customers. This can give you an idea of ​​where your savings stack up against your peers:
- Gen Z: $9,800
- Millennium Games: $54,000
- Gen X: $165,300
- Baby Boomers: $230,900
This represents investments in a 401(k). People may have more money in an IRA or other investment account. Still, those figures show that the typical person does not retire with $1 million. So, you shouldn’t feel left behind if you’ve just started saving for retirement. Do what you can to beat these averages and grow your portfolio.
Hopefully these statistics will help shed some light on the importance of investing and investing wisely. Consider meeting with a financial adviser to discuss your portfolio for further advice.
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