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What return can I expect from an index fund?

A reasonable long-term average is between 7% and 9% a year before inflation. But the average is only the start of the answer.

The historical average

Global stock indexes have returned roughly 7% to 9% a year over long periods, including dividends and before inflation. Take off 2% inflation and the real return is around 5% to 7%.

Many calculators, including the ones on this site, use 7% as a cautious starting point.

Why the average is misleading

Almost no year is “normal”. It is common for one year to rise 25% and another to fall 15%. The 7% average is what is left after putting together many very different years, not what will happen to you each year.

And a good average is not enough: order matters. Two people with the same average can end up with very different amounts depending on when the falls came, especially if they are adding or withdrawing money.

Thinking in ranges: the Monte Carlo method

Instead of drawing a single perfect line, a Monte Carlo simulation generates thousands of possible futures with good and bad years shuffled at random, using the typical ups and downs of the stock market. The result is not one number but a spread: the median scenario, a bad one (the worst 10%) and a good one (the best 10%).

That answers a far more useful question than “how much will I have?”: “how likely am I to reach my goal?”. If it says 90%, you are on track. If it says 55%, consider investing a bit more, giving yourself more years or lowering the goal.

What you can control

You do not control what the market does, but you do control three things that matter a lot: the fees you pay, how long you stay invested and not selling in the middle of a crash. A cheap index fund and patience usually beat almost any attempt to outguess the market.

The lab simulates thousands of futures with your plan and tells you the probability of reaching your goal. Try it with your numbers →

Frequently asked questions

Can I use 10% in my plans?

You can, but you risk planning around a scenario that is too optimistic. It is wiser to plan with 6% to 7% and let reality, if it turns out better, be a nice surprise.

Do past returns guarantee future ones?

No. Historical data helps you get a feel for reasonable ranges, but the future can be better or worse.

What is the “worst 10%” scenario?

It is a result that only 1 in 10 simulated futures falls below. It shows how badly things could go without being the most extreme case.

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Educational content. Not financial advice: past returns do not guarantee future ones.