Annual Average Rate of Return for Investments

Average Annual Return from 1926 - 1999 by Investment Type

Small Cap Stocks (Russell 2000) = 18.81% Mathematically, 12.5% Actual
Large Cap Stocks (S&P 500) = 13.11% Mathematically, 11.1% Actual
Commercial Real Estate = 11%
Long Term Bonds = 5.36% Mathematically, 5% Actual
Private Home = 5%
Short Term Bonds = 3.82% Mathematically, 3.8% Actual
Inflation = 3.17%

The best average performance during this 64 Year came from Common Stocks. Small Cap Stocks, as measured by the Russell 2000 index, did the best. Large Cap Stocks, as measured by the S&P 500 index, came in second. Commercial Real Estate came in third.

An investment must beat inflation for it to truly be an investment that grows money. It is very unlikely that bonds and your private home will give the best long term return.

An issue is the amount of Risk – Price Fluctuations. Every Investment has Price Fluctuations – how long do you need to hold it to minimize it? The investments that had the highest return also had the most risk. The holding period for each investment is very important to understand.