It’s common knowledge at this point that the average annual return for the S&P 500 is somewhere between 8% and 10%, depending on what year you start counting.
You even see these numbers among many sell-side analysts when they come out with their year-end projections.
As Salvadoran author and filmmaker Erwin Raphael McManus said, “Average is always a safe choice, and it is the most dangerous choice you can make.”
But the truth is, the S&P 500 almost never returns between 8% and 10%.
This is the “average” return.
But we simply do not live in an average world.
When ‘Average’ Happens
My friend Ryan Detrick is the Chief Market Strategist at Carson Group, a large investment advisory with more than $40 billion in assets under management.
He published a chart this week providing a great reminder to all investors that this 8%-to-10% average return is actually extremely rare.
We’ve only seen returns fall within this range four times since 1950.
That’s it: four times.
Stock market returns are historically a lot more, or even a lot less than 8% to 10%.
As of this morning, the S&P 500 is up 8.64% in 2025, falling within the historical average of returns over the years.
But as we know, the likelihood of the return ending up here is slim.
Our bet is we’re likely to finish 2025 with much higher returns, like the S&P 500 did last year with a gain of 23%, and the year before that, when it was up 24%.
Everybody’s Wrong
In this case, everybody actually is wrong.
They confuse “average” with reality.
We do not live in an average world.
If I’m standing up and I have one foot on hot coals, and one foot in a bucket of ice water, my body temperature is about “average.”
You can’t argue with that. It’s the volatility in that temperature that is not being accounted for with that statement.
When you look at the S&P 500, you’ll find that some years it’s up 43% or 54%. Some years it fell 37% and 43%.
These volatile returns are much more common than the 8% to 10% average return.
It’s because we don’t live in an average world.
We never have.
And my bet is we never will.
So we’re acting accordingly and betting on returns this year that don’t fit within the average.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs