Distribution of S&P 500 Annual Returns

Looking at the S&P 500's annual returns over the past 50 years (1974-2023), approximately 78% of years were positive and about 22% were negative. The average annual return is roughly 10.5% (including dividends), but individual years range from -37% (2008) to +38% (1995). The "average 10%" figure does not mean the market rises a steady 10% every year.

Notably, years with large negative returns tend to be followed by strong positive years. After 2008's -37%, 2009 returned +26%; after 2002's -22%, 2003 returned +29%. Panic selling during a crash means missing the subsequent recovery.

Investment Horizon and the Probability of Loss

When investing in the S&P 500, the probability of incurring a loss decreases as the holding period lengthens. Historical data shows the probability of loss at roughly 27% for a 1-year hold, about 12% for 5 years, approximately 5% for 10 years, and nearly 0% for 15 years or more. In other words, for any starting point in history, holding for 15 years or longer never resulted in a loss of principal.

This does not mean long-term investing is risk-free. There is no guarantee that future patterns will mirror the past, and the possibility of loss over 15 years is not strictly zero. However, the historical data strongly suggests that time is the most powerful risk mitigator.

Detailed Analysis of Returns by Decade

S&P 500 returns vary dramatically by decade. The 1990s, fueled by the dot-com boom, delivered an extraordinary average annual return of 18.2%. The 2000s, hit by the dot-com bust and the global financial crisis, averaged -0.9% - a true "lost decade." The 2010s, supported by monetary easing and tech sector growth, averaged 13.6%.

These decade-by-decade differences vividly illustrate how returns vary depending on when you start investing. Someone who invested a lump sum in 2000 was underwater for 10 years, while someone who invested in 2009 saw their assets roughly triple in a decade. Yet regardless of starting point, holding for 20 years or more tends to converge toward an average annual return of 7-10%. Introductory books on U.S. stock investing help you understand the strength of the U.S. economy that underpins the S&P 500's long-term returns.

Key Considerations for Japanese Investors in the S&P 500

When investing in the S&P 500 from Japan, currency risk enters the equation. Even if returns are positive in dollar terms, a strengthening yen can turn yen-denominated returns negative. For example, in 2022 the S&P 500 fell -18% in dollar terms, but the sharp yen depreciation (from about 115 to 132 yen per dollar) softened the yen-denominated loss to roughly -5%. Conversely, in 2023, the dollar-denominated +26% return was amplified by further yen weakness, delivering over +30% in yen terms.

Over the long term, because U.S. inflation tends to run higher than Japan's, the dollar tends to strengthen against the yen, and currency gains often boost returns. Holding an unhedged mutual fund for the long term is the most cost-effective and rational choice. Data-driven books on long-term investing let you verify the advantage of long-term holding through historical market data.

Next Steps - Start Investing in the S&P 500

The easiest way to invest in the S&P 500 is to set up automatic monthly contributions to a low-cost index fund such as eMAXIS Slim U.S. Equity (S&P 500) within a NISA (Nippon Individual Savings Account) account. With an expense ratio of around 0.09% per year and a minimum purchase of just 100 yen, you simply set it and forget it.

Try our simulator with an assumed annual return of 7-10% (the S&P 500's historical average) to see what your DCA results could look like. Over a horizon of 15 years or more, the S&P 500 is one of the most reliable investment options available to individual investors.