Investors are far more likely to earn the best returns by investing for the long term in the stocks of great companies.

From 1926 through the end of 2021, the S&P delivered an average stock market return rate of 10.49%. That average annual return includes dividends, but not inflation. If you adjust for inflation, the average stock market return drops to 7.37%.

In the past 50 years, the S&P 500 has gained in value 40 of the past 50 years, generating an average annualized return of 9.4%.

Yet, there’s simply no reliably accurate way to predict which years will be the good years and which years will underperform or even lead to losses. But we do know that, historically, the stock market has gone up more years than it has gone down.

Despite that, only a handful of years actually came within a few percentage points of the actual average. Far more years significantly either underperformed or outperformed the average than were close to the average.

Invest in the stocks of high-quality companies, ideally regularly across every market condition, and hold those investments for many years.

The evidence is overwhelming that investors who try to time the market, who try to trade their way to higher returns with short-term moves or who try to buy and sell based on projections of short-term peaks and bottoms generally earn below-average returns, writes Motley Fool. Moreover, those strategies require substantially more time and effort. They can also result in higher fees and taxes that further reduce gains.

If you’re looking to build wealth, investing for the long-term in stocks is an excellent place to start. Investing is the best way to compound your money.

It is recommended that you invest in a market index fund or you invest in the stocks of profitable and stable companies, and hold them for the long-term. By holding your investment for the long-term — think decades — your invested capital can experience compounding growth.

The lesson for investors is don’t get sidetracked by short-term stock movements and market volatility, which tend to stir up lots of headlines and cause investor panic or fear of missing out. Reasonable and largely stable investment returns will realize you the best returns.

To get the best returns in stock investing, use the method that’s tried and true: Buy the stocks of great companies and hold them for the long-term.

Stocks do offer some limited protection against inflation, as companies can typically raise their prices to compensate for a weakening dollar and loss of purchasing power. But stocks over the long-term have not beaten real estate as a hedge against inflation.

References:

1. https://www.fool.com/investing/how-to-invest/stocks/average-stock-market-return/
2. Jeremy J. Siegel, Stocks for the Long Run: The Definitive Guide to Financial Market Returns & Long-Term Investment Strategies, fifth edition, New York, NY: McGraw-Hill Education, 2014.
3. https://www.mckinsey.com/capabilities/strategy-and-corporate-finance/our-insights/prime-numbers/markets-will-be-markets-an-analysis-of-long-term-returns-from-the-s-and-p-500