What Is the Average Monthly Return on the Stock Market? Breaking Down the Numbers

Have you ever looked at your investment account and wondered if your returns are “normal”? Maybe you’ve been hearing about the stock market’s historical 10% returns but aren’t sure what that means for your monthly expectations Well, you’re not alone! Today we’re diving deep into what you can actually expect from the stock market on a month-by-month basis

The Big Picture: Average Annual Returns

Before we get into monthly returns, let’s establish the foundation. According to NerdWallet, the average stock market return is about 10% per year, as measured by the S&P 500 index over nearly the last century. This has remained remarkably steady over the long term.

However, I gotta tell ya – that 10% isn’t exactly what ends up in your pocket. After inflation (which typically runs 2-3% per year), your real purchasing power increases by about 7-8% annually. Still pretty darn good compared to letting your money sit in a regular savings account!

But here’s the kicker – that 10% average yearly return almost NEVER happens in any given year. In fact, between 1926 and 2024, the annual return only fell in the 8-12% range eight times. Most years, returns were either much higher or much lower than the average.

Breaking Down Monthly Returns

So what about monthly returns? If we take that 10% annual return and divide by 12 we’d get about 0.83% per month right?

Wrong!

The market doesn’t work that way. Monthly returns vary significantly throughout the year. Based on data from Nasdaq (analyzing S&P 500 returns from January 1928 through December 2023), here’s what the average monthly returns actually look like:

Looking at these numbers, some interesting patterns emerge:

• July has historically been the best month for the stock market, with an average return of 1.7%
• September is truly the cruelest month for investors, with an average decline of 0.8%
• April and December are tied for second-best with 1.4% average returns
• The stock market delivers positive returns in 9 out of 12 months

Busting Some Market Myths

Ever heard the saying “Sell in May and go away”? This old Wall Street adage suggests investors should sell their stocks in May and stay out of the market until fall because summer months supposedly perform poorly.

But the data doesn’t support this! Looking at our monthly breakdown, summer months actually perform pretty well:

• June: +0.6%
• July: +1.7% (best month of the year!)
• August: +0.8%

The “September Effect,” however, is very real. The S&P 500 has historically fallen sharply in September, dropping an average of 0.8%. Some investors use this knowledge to keep cash ready for buying opportunities during September’s typical dip.

What This Means For Your Investment Strategy

Now, should you try to time the market based on these monthly averages? Probably not, and here’s why:

1. Monthly variability is high – While these are averages over many decades, any single month can vary dramatically from the historical average.

2. Probability of positive returns increases with time – According to Nasdaq’s data:

   • 1-month holding period: 59% chance of positive returns
   • 1-year holding period: 69% chance of positive returns
   • 5-year holding period: 79% chance of positive returns
   • 10-year holding period: 88% chance of positive returns
   • 20-year holding period: 100% chance of positive returns (!!!!)

That last bullet point is mind-blowing. The S&P 500 has delivered positive returns in EVERY 20-year period since 1928. That’s a perfect record!

How to Apply This Knowledge

So what should we actually DO with this information? Here are some practical takeaways:

1. Think Long-Term

The longer your investment horizon, the better your odds of positive returns. If you’ve got at least 5-10 years before you need your money, the historical data suggests you’ll likely come out ahead by investing in the stock market.

2. Consider the September Effect

If you’re making regular contributions to your investment accounts, you might consider allocating a bit more cash for September investments when stocks have historically been “on sale.”

3. Don’t Overreact to Monthly Fluctuations

Remember that any single month can deviate wildly from historical averages. When you see your portfolio drop 5% in a month that’s historically positive, don’t panic!

4. Use Dollar-Cost Averaging

Instead of trying to time the market based on monthly patterns, consider investing a fixed amount on a regular schedule. This strategy, called dollar-cost averaging, ensures you buy more shares when prices are low and fewer when prices are high.

Beyond the S&P 500

While we’ve been focusing on the S&P 500 as a proxy for “the market,” it’s worth noting that this index has outperformed virtually every other asset class over the past 5, 10, and 20 years. This includes:

• Equities in Europe, Asia, and emerging markets
• U.S. and international bonds
• Precious metals
• Real estate

This makes S&P 500 index funds an attractive option for most investors, especially as a core holding.

What About Recent Performance?

Let’s take a quick look at more recent performance. Over the 30-year period ending in 2024, the S&P 500 returned a total of 1,710%, compounding at 10.1% annually. This period covers numerous market environments – from economic booms to recessions – suggesting that similar returns might be reasonable to expect over the next three decades.

Looking at shorter timeframes:

• 5-year average annual return (2020-2024): 14.25%
• 10-year average annual return (2015-2024): 12.21%
• 20-year average annual return (2005-2024): 9.72%
• 30-year average annual return (1995-2024): 10.49%

The Bottom Line

The average monthly return of the stock market varies significantly by month, with July historically being the strongest (1.7%) and September being the weakest (-0.8%). However, trying to time the market based on these historical patterns is probably not the best strategy for most investors.

Instead, focus on the powerful long-term trend: the S&P 500 has averaged about 10% annual returns over the long run and has been profitable in EVERY 20-year period since 1928.

For the average investor, this suggests a simple but powerful approach:

1. Invest regularly
2. Stay invested for the long haul
3. Don’t panic during downturns
4. Consider buying more during historically weak months like September

Remember that while we can analyze historical patterns, the market doesn’t come with guarantees. Past performance doesn’t guarantee future results, but the historical data provides a compelling case for long-term stock market investing.

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