The S&P 500 has returned around 10% annually

Over the past several decades, the S&P 500 (^GSPC -0.75%) index has been one of the greatest wealth generation machines in history. Even more impressive is its simplicity — invest in 500 of the largest companies in the United States and readjust periodically. No stock picking. No market timing. Just long-term compounding of growth.

What will the next years, decades, and beyond look like for the S&P 500? History gives us a good idea of what to expect.

The S&P 500 has returned around 10% annually

Since the index’s official launch in 1957, the S&P 500 has returned roughly 10% per year. Those numbers might feel a little low considering that it’s gained closer to 15% per year over the past decade. But keep in mind that the market has been operating far longer than just during the tech boom.

With the disclaimer that past performance is not a predictor of future returns, this is probably a good baseline to work with if you’re doing long-term projections of market returns.

Expect some pain along the way

Unfortunately, that 10% per year return has been far from a straight line. Past events, such as the COVID-19 pandemic, the financial crisis, the tech bubble, and the stagflation ’70s, have resulted in several declines of 30% or more over the years.

Since 1980, the S&P 500’s average largest intra-year correction has been about 14%. Bear markets, defined as a decline of at least 20%, have historically occurred roughly once every six years and have averaged a loss of roughly 33%.

This, unfortunately, is the price of admission for investing in equities. Historically, the trade-off for trying to capture that 10% average annual return has been a significant amount of volatility along the way. If the idea of those kinds of declines makes you nervous, you might want to consider something more conservative.

But if you’re disciplined enough to ride out that volatility, the long-term growth potential is strong.

The S&P 500 will probably look a lot different in 2050

Every year, companies get added and deleted from the index. It’s just the normal process of updating for an evolving economy. That’s an advantage with investing in the S&P 500 because the economy can change a lot over the years.

When the index launched in 1957, General Motors (GM +0.38%), U.S. Steel, and Chrysler were among the top 10 holdings. That’s a relic from a time when industrials, utilities, and railroads were big businesses.

But if you invest in something like the Vanguard S&P 500 ETF (VOO -0.73%), you don’t need to worry about what’s going to fall off or get added. The index’s reconstitution and rebalancing process will do the work for you. Your investments will change as the economy changes.

The one thing that’s likely to stay the same, though, is the S&P 500’s effectiveness as a long-term investment vehicle. Invest regularly, ride out the volatility, and enjoy the long-term returns.