Stocks like Amazon and Apple returned a lot of money to its investors over the years. Amazon was $1.50 in its IPO (split-adjusted). Now, it’s almost $2 000.
Finding stocks like Amazon is quite rare. Also, it took a long time to become what it is today. But how much can an average person realistically make on stocks in a year?
The market has returned 10.31 percent per year on average in the last 100 years. At that rate, you can make $103.10 from stocks with a $1000 invested on a year. A $10 000 investment would give an income of $1 031 in a year.
The market returns are not fixed. It changes every year. Some years gives high returns. At the same time, some years have negative returns.
There is no fixed returns on the market. Every stock have different returns on different time periods. First, we’re looking at the average returns using the S&P 500.
Let’s take a look at historical data from 1928. These are the market averages which means the average prices of each stock on the S&P 500 combined.
Number of Years and Its Returns
Source: LPL Financial
Key Takeaways:
- Only 6.7% of years have returns of exactly between 5 to 10 percent
- Two-thirds (66.3%) of the years generated positive returns.
- One-third (33.7%) of the years generated negative returns.
- Half (50.6%) of the years returned more than 10%.
- Half (49.4%) of the years returned less than 10%.
We can see that on any given year, there are a lot of possible returns. There is a 27.0% chance for a year to generate more than 20 percent returns. On any 10 year period, almost 3 of those years will give more than 20% income.
At the same time, there is a 21.3% chance for a year to lose more than 10 percent. On any 10 year period, 2 of those years will lose more than 10%.
An average of 10 percent income seems pretty accurate. Half of the years returned more than 10 percent, while half of the years returned less than 10 percent.
Long-Term Investing
We cannot predict the return on the market in the future. Looking at the chart above, the only way to get a return close to 10 percent per year is to invest in the long term.
If a person only invest in one year, a return of negative 15 percent is possible. After a year, that person can certainly say that stock market does not work. But if you stayed invested long enough, there is a high chance of a return close to 10 percent per year.
After all, two-thirds of the years are positive. And only one-thirds are negative.
Income from Market depends on These Two Things
Income from stocks depends on amount on amount of capital and rate of return.
The amount of capital is the amount of money invested. The more money invested, the higher the potential profit or loss.
To better illustrate, here is a table on possible returns from investment.
As capital grows,the more potential gains or loss.
| Capital | Same Returns | Income |
| $ 100.00 | 10% | $ 10.00 |
| $ 1,000.00 | 10% | $ 100.00 |
| $ 5,000.00 | 10% | $ 500.00 |
| $ 10,000.00 | 10% | $ 1,000.00 |
| $ 20,000.00 | 10% | $ 2,000.00 |
| $ 50,000.00 | 10% | $ 5,000.00 |
| $ 100,000.00 | 10% | $ 10,000.00 |
How the rate of return affects gains or loss.
| Same Capital | Rate of Return | Income |
| $ 10,000.00 | 1% | $ 100.00 |
| $ 10,000.00 | 2% | $ 200.00 |
| $ 10,000.00 | 3% | $ 300.00 |
| $ 10,000.00 | 4% | $ 400.00 |
| $ 10,000.00 | 5% | $ 500.00 |
| $ 10,000.00 | 6% | $ 600.00 |
| $ 10,000.00 | 7% | $ 700.00 |
| $ 10,000.00 | 8% | $ 800.00 |
| $ 10,000.00 | 9% | $ 900.00 |
| $ 10,000.00 | 10% | $ 1,000.00 |
| $ 10,000.00 | 15% | $ 1,500.00 |
| $ 10,000.00 | 20% | $ 2,000.00 |
| $ 10,000.00 | 30% | $ 3,000.00 |
| $ 10,000.00 | 50% | $ 5,000.00 |
The more important of the two is the rate of return. A large capital enhances gains or loss. Generating positive returns is the goal of investing,
A 1 percent difference on investment turns into a lot of money over the long run. Let’s take 20 years for example:
A regular investment of $1 000 a month for 20 years at 10 percent a year will be $759,368. The same $1 000 a month but with an 11 percent return will be $865,638. That’s a difference of over $100,000 with just a 1 percent increase in return.
The first thing you do is to follow Warren Buffet’s rule in investing.
“Rule No. 1: Never lose money.
Rule No. 2: Don’t forget rule No. 1”. (Warren Buffet)
It seems like Warren Buffet is joking to us by saying these. But it is actually quite profound.
Investing becomes really simple after reading this statement. The purpose of investing is to minimize risk. Also, loss is only realized after selling to a stock.
Many stocks go down at some point. People who sold and panicked lost some money. But the people who stayed, actually did not lose any money after waiting. In fact, it resulted to incredible gains as the market hits another all time high.
Is it Possible to Beat the Market?
The goal of every investor is to beat the market. If not, they can be better off buying an index fund.
As stated above, 1 percent difference in annual returns is a lot of money over a long run. That’s why people invests in individual stocks.
Investing in stocks is not a get rich quick scheme. Instead, it is a means to build wealth over time. To help other people and not be a burden to others.
At the end of the day, stocks are businesses. If you own a stock, look it as owning a piece of a business. A business takes time to grow. We pay our money to businesses, whether its food, clothes, or accessories. A famous brand or store usually have stocks. And you can invest in stocks. After all, the purpose of most businesses is to have profit.
Beating the market requires patience and experience. To have experience, it is advisable to start with little money. Starting with little money allows a person to make a mistake and not be costly.
When a person has enough experience on investing, there is a higher chance of gaining high returns on the market.
Think of it as learning to drive. At first, you are not comfortable driving. Just driving slow and on a safer place. As you practice driving, you just become naturally better at it.
When you’re first driving, you don’t go to high way or city. A parking lot will do. As you practice and learn, driving becomes easy.
Same with investing, at first you have no idea if what you’re doing is right. But as you gain experience and watch how the market works, you can be more comfortable in your investments.
The best time to start is now. Investing is like planting a tree, it takes time for a tree to grow. And the best time to plant a tree is today.
It all start with buying your first stock.