What’s the Probability of Losing Money in the Stock Market Long-Term?

This note provides an analysis of the probability of losing money in the stock market over a long-term horizon, specifically focusing on 10-year rolling returns for the S&P 500.

The analysis is grounded in historical data and aims to address the complexity and variability in reported statistics, ensuring a thorough understanding for investors and content creators.

Background and Context

The S&P 500 is a widely used benchmark for the U.S. stock market, representing the performance of 500 large companies.

When assessing long-term investment risk, “rolling returns” are a critical metric, as they examine the performance over consecutive 10-year periods, accounting for all possible start and end dates. This approach helps capture the market’s behavior across different economic cycles, including bull and bear markets, crashes, and recoveries.

Below are the rolling returns for SPY (S&P 500):

Historical data since the late 1920s, particularly from 1928 or 1929, is often used to analyze long-term trends, given the availability of reliable S&P 500 data. The focus on 10-year periods is relevant for investors planning for retirement, education funds, or other long-term financial goals, as it aligns with common investment horizons.

Key Findings: Probability of Losing Money Over 10 Years

Research suggests the probability of losing money in the S&P 500 over a 10-year period is approximately 6%, based on historical data from 1929 to today.

This figure implies a 94% chance of making money, highlighting the safety of long-term investing.

However, there is some controversy, as other sources indicate a higher probability, around 14%, depending on the time frame and definition of “losing money.”

Detailed Statistics and Sources

• 6% Probability (Primary Estimate): According to BofA Global Research, the probability of negative returns over 10 years is about 6%, based on data from 1929 until today. This aligns with findings from Money.com, which reports a 94% chance of making money over 10 years, implying a 6% loss probability, citing The Measure of a Plan. Additionally, LazyPortfolioETF.com for the SPDR S&P 500 ETF (SPY) shows a 6.29% probability of negative 10-year rolling returns, supporting this figure for more recent data since 1993.
• 14% Probability (Alternative Estimate): Financial Interest reports that out of 87 rolling decades since 1928, the S&P 500 experienced a negative return 12 times, yielding a 13.8% probability of loss (86.2% chance of profit). This higher figure likely reflects the inclusion of earlier, more volatile periods like the Great Depression, which saw significant losses (e.g., a 40% decline from 1929 to 1939).

Table: Comparison of Probability Estimates

Source	Time Frame	Probability of Loss Over 10 Years	Notes
QuantifiedStrategies.com (BofA)	1929 to 2025	~6%	Total return, includes dividends
Money.com (The Measure of a Plan)	Not specified, likely post-1929	~6%	Implied from 94% chance of making money
LazyPortfolioETF.com (SPY)	Since 1993	6.29%	ETF tracking S&P 500, recent data
Financial Interest	Since 1928	13.8%	12 negative out of 87 rolling decades

Analysis of Discrepancies

The discrepancy between the 6% and 14% probabilities arises from several factors:

• Time Frame: Sources using data since 1928 (e.g., Financial Interest) include the Great Depression, which had multiple 10-year periods with negative returns (e.g., ending in 1939). In contrast, other sources may focus on post-1929 data or more recent periods, where market recoveries have been stronger.
• Definition of Returns: Some analyses use total returns (including dividends), while others may focus on price returns.
• Data Source and Methodology: Different sources may use varying methodologies for calculating rolling returns, such as monthly vs. annual data, or whether they account for inflation (real vs. nominal returns).

Supporting Evidence and Context

• Historical Performance: The S&P 500 has delivered an average annual return of 10.13% since 1957, with a real return of 6.37% after inflation. This long-term growth supports the low probability of loss over decades.
• Longest Negative Periods: The longest period of negative 10-year returns occurred during the 1930s (e.g., ending in 1939 with a -5% annual return) and the 2000s (dot-com bust and financial crisis, with near-zero or slightly negative total returns from 2000 to 2010). These periods are outliers in a generally upward trend.
• Comparison with Shorter Time Frames: For context, the probability of losing money over a single day is about 46%, akin to a coin toss.

Why the Probability Decreases Over Time

The low probability of loss over 10 years can be attributed to several factors:

• Economic Growth: Over decades, corporate earnings and economic productivity tend to increase, driving stock prices higher.
• Dividend Reinvestment: Many S&P 500 companies pay dividends, which compound over time when reinvested, boosting total returns.
• Market Recovery: Historical data shows that even after severe downturns (e.g., 57% drop during the 2007–2009 Financial Crisis), the market has always recovered.
• Productivity gains.

Practical Implications for Investors

It’s also important to address common concerns:

• Market Crashes: Acknowledge that crashes happen, but emphasize that holding through them has historically led to positive outcomes, as seen in recoveries post-1929 and 2008.
• Inflation: While nominal returns are strong, real returns (adjusted for inflation) remain robust, with an average of 6.37% since 1960.
• Diversification: Investing in a broad index like the S&P 500 reduces risk compared to individual stocks, making it a safer long-term strategy.

Conclusion and Recommendations

The evidence leans toward a low probability of losing money in the S&P 500 over 10 years, with estimates around 6% based on recent and comprehensive data.

However, investors should be aware of potential variations due to historical periods like the Great Depression, which could push the probability higher (e.g., 14%).