VOLATILITY OF THE S&P 500 INDEX

by Ernesto R. Martin

Over the last 15 years through 2025 the S&P 500 had an average annual return of over 14%, but not all years were the same. There were three years with returns of over 30%, two years when it had little gain, and two years when it lost 4% and 18% of its value. And if you go back further, in the two and a half year period from September 21, 2007 to March 6, 2009 it lost about half its value.

Since an investment in the S&P 500 is for the long term, desirably 10 years or more, how it did in any given year is less important than how it does over a period of several years. Earlier you learned that the Index has had an average annual return of nearly 12% from 1957 to 2024, over 15% in the 10 years to October 2025, and over 23% in the 3 years to the end of 2025, with dividends reinvested. But what if you wanted to know how the Index did in a 10-year period? That depends on the starting year you choose to look at. The table at right, shows the average annualized return of the Index for 28 of those 10-year periods starting in 1980. Over those 28 periods, note that 24 had positive returns (and some were rather large), 1 had a negligible return and 3 had losses. So while the chances are small, even a 10-year investment does not guarantee a positive return. (Incidentally, since 1980 there has never been a 20-year period where the average annualized return was negative.)

Most investors would find these odds acceptable, especially when you note the relatively small losses in the 3 periods with losses. If you don't find these odds acceptable, look at the later section on investing in real estate with a mortgage. More hands-on and less liquid than a stock investment but average annualized returns that are comparable to the longer-term S&P 500 index annual average (in the 7% to 10% range) with little volatility.