“The Market Always Goes Up” — But Does It?
You’ve heard it a thousand times. It’s the foundational belief of passive investing: over the long run, the stock market goes up. Buy index funds, hold forever, get rich slowly.
And it’s true. Mostly. But “the market always goes up” is an oversimplification that hides a lot of ugly reality along the way. The S&P 500 has indeed produced remarkable long-term returns — but the path to those returns has been volatile, terrifying, and deeply uncomfortable at times.
Let’s look at what 100 years of actual data tells us. Not the sanitized version. The real thing — including the crashes, the lost decades, and the recoveries.
The Big Picture: 1926 to 2025
Over the roughly 100-year period from 1926 to 2025, the S&P 500 (and its predecessors) has delivered:
| Metric | Value |
|---|---|
| Average annual return (nominal) | ~10.2% |
| Average annual return (real, after inflation) | ~7.0% |
| Positive years | ~73% of the time |
| Negative years | ~27% of the time |
| Best single year | +52.6% (1954) |
| Worst single year | -43.8% (1931) |
That 10.2% average sounds great. And over very long periods, it has been great. $1,000 invested in the S&P 500 in 1926 would be worth over $12 million today (with dividends reinvested).
But here’s what the average doesn’t tell you: almost no individual year actually returns 10%. The market either significantly outperforms that average or significantly underperforms it. The “average” is a mathematical abstraction, not a lived experience.
The Returns You Actually Experience
The distribution of annual returns looks nothing like what most people expect:
| Return Range | Frequency | What It Feels Like |
|---|---|---|
| Above +30% | ~15% of years | Euphoria. You feel like a genius. |
| +20% to +30% | ~15% of years | Great year. Everything’s working. |
| +10% to +20% | ~20% of years | Solid, comfortable growth. |
| 0% to +10% | ~15% of years | Meh. Feels like nothing happened. |
| -10% to 0% | ~15% of years | Annoying but manageable. |
| -20% to -10% | ~10% of years | Stressful. Headlines are scary. |
| Below -20% | ~10% of years | Panic. “Is this the end of capitalism?” |
Look at those extremes. The market has returned more than 20% in roughly 30% of all years. But it’s also lost more than 10% in about 20% of years. That’s a wild ride — and it’s completely normal.
The Crashes That Tested Every Investor
Let’s revisit the major market crashes, because understanding them is essential for setting expectations.
The Great Depression (1929–1932)
| Detail | Value |
|---|---|
| Peak-to-trough decline | -86% |
| Duration of decline | 2.8 years |
| Time to full recovery | ~25 years (1954) |
The granddaddy of all crashes. The market lost 86% of its value. If you had $100,000 invested at the peak, it shrank to $14,000. The full recovery took 25 years — a generation.
This is the example people cite when arguing against stocks. And it’s a fair point: if you invested a lump sum at the absolute peak of 1929 and needed that money anytime in the next 25 years, you were in trouble.
But context matters. The Great Depression was a once-in-a-century economic collapse accompanied by catastrophic policy failures. The modern financial system has safeguards — FDIC insurance, Federal Reserve intervention, circuit breakers — that didn’t exist in 1929.
Also, if you were dollar-cost averaging through the Depression (rather than investing a lump sum at the peak), your recovery was much faster because you bought heavily at depressed prices.
The Dot-Com Crash (2000–2002)
| Detail | Value |
|---|---|
| Peak-to-trough decline | -49% |
| Duration of decline | 2.5 years |
| Time to full recovery | ~7 years (2007) |
The tech bubble of the late ’90s drove the S&P 500 to absurd valuations. When it burst, tech-heavy investors lost everything. But the broad S&P 500 “only” lost about half its value — still devastting, but survivable.
The recovery took until 2007, which unfortunately was right before the next crash.
The Financial Crisis (2007–2009)
| Detail | Value |
|---|---|
| Peak-to-trough decline | -57% |
| Duration of decline | 1.4 years |
| Time to full recovery | ~5.5 years (2013) |
The housing bubble collapse nearly brought down the global financial system. Major banks failed. Unemployment soared. The S&P 500 dropped 57% from its October 2007 peak.
But this time, the Federal Reserve intervened aggressively with quantitative easing and near-zero interest rates. The recovery was faster than the dot-com crash — about 5.5 years to fully recover, and then the market went on one of the longest bull runs in history.
The COVID Crash (2020)
| Detail | Value |
|---|---|
| Peak-to-trough decline | -34% |
| Duration of decline | 1 month |
| Time to full recovery | ~5 months |
The fastest crash and recovery in history. The S&P 500 lost 34% in about four weeks as the world shut down. Then it recovered everything by August 2020, driven by massive fiscal stimulus and rapid adaptation by tech companies.
The 2022 Bear Market
| Detail | Value |
|---|---|
| Peak-to-trough decline | -25% |
| Duration of decline | ~10 months |
| Time to full recovery | ~2 years (2024) |
The Fed’s aggressive interest rate hikes to fight inflation drove the market down 25%. Growth and tech stocks were hit hardest. The recovery took about two years as inflation cooled and the economy proved more resilient than feared.
The Pattern That Emerges
Looking at all these crashes, a pattern becomes clear:
Every crash has recovered. Every single one. The Great Depression. World War II. The 1970s stagflation. The dot-com bust. The financial crisis. COVID. Every time, the market eventually hit new highs.
Recoveries are getting faster. The Great Depression took 25 years. The financial crisis took 5.5 years. COVID took 5 months. As financial markets have matured, interventions have become faster and more effective.
But “eventually” can be a long time. If you needed your money within 5-7 years of a major crash, you might have been forced to sell at a loss. “The market always recovers” only helps if you can wait for the recovery.
The Lost Decades
This is the part that long-term investing advocates sometimes gloss over.
1929–1954: The Original Lost Period
If you invested at the 1929 peak, it took 25 years to break even (in nominal terms). Adjusted for inflation, it was even longer. An entire generation of investors saw flat or negative real returns.
2000–2013: The Modern Lost Decade(s)
If you invested at the March 2000 dot-com peak, you were still underwater in October 2002 when the market bottomed. Then the market recovered by 2007 — only to crash again in the financial crisis. You didn’t permanently recover to your 2000 investing level until 2013. That’s 13 years of going nowhere.
Now, there’s a huge caveat here: these “lost decades” assume you invested a lump sum at the absolute peak and then added nothing more. If you were dollar-cost averaging throughout, your experience was dramatically different. Buying through the dips means your average purchase price was much lower, and your recovery was much faster.
Still, seeing your account balance flat or negative for a decade is psychologically brutal, regardless of the math. This is why bond allocation matters — even a 20% bond position would have significantly cushioned these rough periods.
What 10.2% Average Returns Actually Look Like
Let’s ground this in real dollars. Assume you invested $500/month into an S&P 500 index fund (0.03% expense ratio) with dividends reinvested:
| Period | Total Invested | Portfolio Value | Annualized Return |
|---|---|---|---|
| 10 years | $60,000 | $92,000 | ~8.6% |
| 20 years | $120,000 | $295,000 | ~9.2% |
| 30 years | $180,000 | $680,000 | ~9.8% |
| 40 years | $240,000 | $1,480,000 | ~10.1% |
These assume the long-term average of ~10% nominal returns, which includes some periods far above average and some far below. The annualized return approaches 10% only after very long periods because short-term variability smooths out.
The takeaway: $500/month for 40 years at market-average returns nets you roughly $1.5 million. That’s $240,000 of your money and $1.24 million of market growth. Compound interest is genuinely extraordinary — but only if you give it decades to work.
Realistic Expectations Going Forward
The obvious question: will the market continue returning 10% going forward?
Honest answer: nobody knows. But here are some frameworks for thinking about it.
The Bull Case
- US companies are more innovative, adaptable, and globally competitive than ever
- Technology continues driving productivity gains
- Population growth (especially immigration) supports economic expansion
- The Federal Reserve has demonstrated willingness and ability to support markets during crises
- Corporate earnings have consistently trended upward over long periods
The Bear Case
- Current market valuations are historically elevated (high P/E ratios tend to predict lower future returns)
- Interest rates are higher than the 2010s, which reduces the relative attractiveness of stocks
- National debt levels are historically high
- Demographic shifts (aging populations) could slow growth
- Past performance genuinely does not guarantee future results
Reasonable Expectations
Many financial planners use 7-8% nominal (4-5% real) as their forward-looking estimate for US stock returns. That’s somewhat lower than the historical 10% average, reflecting currently high valuations and a potentially slower growth environment.
Even at a “conservative” 7% annual return, consistent investing still produces remarkable results over 20-30 years. It just might take a bit longer to reach your goals compared to the rosy 10% assumptions.
What This Means for You
Here’s what I take away from 100 years of market data:
Invest for the long term. The market’s short-term behavior is unpredictable and often painful. Its long-term behavior has been consistently rewarding for patient investors. The longer your time horizon, the more confident you can be in positive returns.
Expect crashes. They’re not exceptions — they’re features of the system. A 30%+ crash will happen during your investing lifetime. Probably more than once. Know this in advance, have a plan for it (hint: don’t sell), and you’ll be fine.
Dollar-cost average relentlessly. The investors who did best through every crash are the ones who kept buying. Automatic, consistent investing turns market crashes from disasters into discount shopping opportunities.
Hold some bonds. Not because bonds have great returns, but because they give you stability during the years when stocks are testing your resolve. Even 15-20% in bonds can dramatically reduce the emotional pain of bear markets.
Don’t try to time it. If the last 100 years prove anything, it’s that the market’s best days often come right after its worst days. Missing just the 10 best days in any given decade can cut your returns by more than half. Stay invested.
The market has survived world wars, pandemics, assassination of presidents, terror attacks, nuclear threats, and financial meltdowns. It will survive whatever comes next. The question isn’t whether the market will recover — it always has. The question is whether you’ll be invested when it does.
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