What Average Monthly Stock Market Returns Reveal About Long-Term Investing

The S&P 500 represents the performance of 500 large U.S. companies accounting for approximately 80% of the domestic equities market by capitalization. Understanding average monthly stock market returns across different time periods offers valuable insights that challenge conventional investment wisdom. Historical data from 1928 through 2023 reveals surprising patterns about how markets behave month by month, and more importantly, how holding periods dramatically reshape investment outcomes.

75% of Calendar Months Show Positive Stock Market Returns

Between January 1928 and December 2023, the S&P 500 generated positive returns during 682 out of 1,152 months—meaning approximately 59% of individual months were profitable. This statistic, while appearing modest at first glance, actually demonstrates a fundamental truth: the stock market rises more frequently than it falls. Over this 96-year span, the index moved higher in nine of every twelve months on average, with the remaining three months showing only negligible declines.

Several seasonal patterns emerge when examining average monthly stock market returns. The popular investment adage “sell in May and go away” suggests that stocks tend to cool during summer months before rebounding in autumn. However, historical data contradicts this conventional wisdom. The S&P 500 typically performs well between June and August, with July historically ranking as the single strongest month of the entire year.

One genuine pattern that warrants investor attention is the September Effect. The index has historically experienced sharp declines during September, creating what many call a seasonal weakness. However, this weakness has consistently been followed by rebounds in subsequent months, seemingly driven by renewed enthusiasm about holiday consumption and economic activity ahead. Savvy investors can leverage this monthly return pattern by maintaining cash reserves specifically to purchase stocks during September downturns.

The Power of Holding Period: Why Average Returns Improve Over Time

The relationship between holding period length and positive returns tells a more compelling story than monthly performance alone. According to data compiled from Bloomberg, S&P Global, and other research firms tracking historical returns:

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

This progression reveals a fundamental principle about stock market dynamics: the longer investors maintain their position, the more predictable and reliable their average monthly stock market returns become. The S&P 500 has never experienced a loss across any rolling 20-year period since 1928, despite countless economic downturns, wars, recessions, and financial crises during that timespan.

Long-Term Wealth Building: Why Average Returns Matter

The historical average monthly stock market returns, when compounded over decades, produce wealth-building results difficult to achieve through other means. Over the past three decades, the S&P 500 delivered approximately 1,710% total return, compounding at 10.1% annually. This performance reflects a market that navigates through diverse economic environments—from periods of explosive growth to severe recessions—yet consistently rewards patient investors.

Comparative analysis reveals that the S&P 500 has outperformed virtually every other asset class over the past 5, 10, and 20-year periods. This includes European and Asian equities, emerging market securities, U.S. and international bonds, precious metals, and real estate. The consistency of these average returns across different market conditions suggests that an S&P 500 index fund offers an exceptionally favorable risk-reward profile for long-term wealth accumulation.

Practical Implications for Investors

Understanding average monthly stock market returns reshapes how investors should approach portfolio construction. The data suggests that monthly volatility is essentially noise—short-term fluctuations that obscure the powerful long-term trends beneath the surface. An investor who focuses on calendar month performance is essentially playing a coin-flip game with 59% odds in their favor.

However, that same investor who extends their time horizon to 20 years improves their odds to 100% based on all historical precedent. This transformation illustrates why successful wealth building depends far less on predicting monthly market movements and far more on maintaining consistent exposure to equity markets over extended periods.

For most investors, an S&P 500 index fund represents a straightforward path to capturing these average stock market returns without the complexity of individual stock selection. While understanding monthly patterns can help investors avoid panic selling during September downturns or recognize seasonal strength in certain quarters, the real power lies in recognizing that time horizon ultimately determines investment outcomes far more than market timing ever could.