Here’s Where The 7% Average Stock Market Return Comes From

Here’s Where The 7% Average Stock Market Return Comes From

Common investing knowledge is that you can expect a 6-7 per cent return when you invest in the broad stock market. But where does this number come from? And is it accurate?

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Probably unsurprisingly, that figure comes from the most successful investor, Warren Buffett, who explained his reasoning to Bloomberg:

The economy, as measured by gross domestic product, can be expected to grow at an annual rate of about 3 per cent over the long term, and inflation of 2 per cent would push nominal GDP growth to 5 per cent, Buffett said. Stocks will probably rise at about that rate and dividend payments will boost total returns to 6 per cent to 7 per cent, he said.

As The Simple Dollar’s Trent Hamm points out, you can see for yourself that this is a historically accurate figure over the long-term too.

The numbers are there, but Hamm brings up an important point: nothing is guaranteed, and as the saying goes, “past performance is not an indication of future results”. Still, this is the best estimate for long-term returns, and its proven to be pretty accurate so far. Read more at the links below.

Stock Investors Should Expect 6%-7% Annual Return, Buffett Says [Bloomberg via The Simple Dollar]


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