Stocks as an asset class: long-run returns, drawdowns and recovery

Stocks are the growth engine of most long-term portfolios. They are ownership claims on companies, so over long stretches their value tends to follow corporate profits, which have grown with the economy and with inflation. That growth comes at a price: of the major asset classes, stocks have some of the deepest and longest declines, and they tend to fall at exactly the moments when jobs and incomes are also under pressure.

This page looks at stocks the way a portfolio sees them, as one asset class among several. What a share is and how one is bought is covered in What is a stock? A complete beginner’s guide to shares. Here the questions are different: what have stocks returned over different holding periods, how often did they lose money, how bad did the falls get and how long did it take to get back? All the answers come from 33 years of monthly prices for the S&P 500 ETF (SPY).

What makes stocks their own asset class

A stock's return comes from two sources: dividends paid out of profits, and changes in the price investors will pay for the remaining claim on future profits. Bonds promise a fixed set of payments; stocks promise nothing. That open-ended claim is what defines the class. When the economy and profits grow faster than expected, stockholders keep the upside. When profits shrink, or when investors decide to pay less for each dollar of profit, stockholders absorb the loss.

Two forces move the whole asset class together, which is why stocks are treated as one class despite thousands of different businesses inside it:

• Expected profits. Recessions cut earnings across most industries at once.
• The price of those profits. Investors value future profits by discounting them at a rate tied to interest rates and to the extra return they demand for risk. When that rate rises, the value of every stream of future profits falls. The mechanics are in How interest rates affect stocks: discount rates and equity duration.

The extra return investors expect from stocks over a safe asset is called the equity risk premium (Risk premium). It is not guaranteed in any period. It is the reward for accepting the possibility of the declines shown below.

33 years on one chart

The top pane is SPY's monthly closing price on a logarithmic scale, where each doubling takes the same vertical distance. The bottom pane is the drawdown: how far the price sat below its highest previous monthly close. A reading of 0% means a new high.

The lower pane is the one to study. It shows that the price spent most of the 33 years below a previous high. Of 405 monthly closes, 142 (35%) were at least 10% below the prior peak. Long-run growth and long stretches of being "down" are not contradictions; both are normal for this asset class.

The largest declines and how long they lasted

Measured on monthly closes, SPY had five falls of 15% or more:

Two patterns stand out. Recoveries after deep, slow bear markets took years, and the recovery from the 2000–2002 fall was barely complete when the 2007–2009 fall began: a buyer at the August 2000 monthly close was underwater on price, excluding dividends, for most of the next 13 years. The sharp 2020 crash, on the other hand, was regained within months. Daily closes would show every one of these falls as somewhat deeper. The story of each episode is in The 2008 financial crisis: housing, Lehman, TARP and the 57% fall, The COVID crash of 2020: the fastest bear market and recovery and The 2022 bear market: inflation, Fed hikes and falling bonds.

Returns by holding period

How risky stocks look depends heavily on how long the money stays invested. The table uses every possible start month in the data and measures the annualized price return to the same month N years later.

The worst single year ran from February 2008 to February 2009; the best from March 2020 to March 2021, starting at the pandemic low. The worst 10-year window, February 1999 to February 2009, ended at the bottom of the financial crisis and lost 5.0% a year in price.

The 5-year row is worse than the 1-year row on the share of losing windows, 24% against 22%. That is a feature of this particular history: two severe bear markets eight years apart put many five-year windows in the red. It is a reminder that 33 years of data contain only a handful of independent decades, so even "every 15-year window was positive" rests on a short record. Past windows describe what happened, not a floor on what can happen.

Calendar years

Over the 32 full calendar years from 1994 to 2025, SPY's price fell in 9: 1994, 2000, 2001, 2002, 2008, 2011, 2015, 2018 and 2022. The best year was 1995 at +34.9%, the worst 2008 at −38.3%. Three losing years in a row, 2000 to 2002, is the longest losing streak in the data. Through October 29, 2026, the price was up 12.8% for the year.

Stocks against inflation and cash

The case for stocks in a portfolio rests on how they compare with the alternatives over long horizons:

After inflation, SPY's price alone grew about 6.1% a year. T-bills, the classic cash holding, roughly kept pace with inflation and no more. The calculation for the bills is an approximation: it compounds each month's average 3-month bill yield for one month.

The gap between those rates is what investors are paid for sitting through the drawdowns in the earlier table. Whether it continues at that size is unknowable. Starting valuations, profit growth and interest rates all affect future returns, which is why historical averages are a description, not a forecast.

The role of stocks in a portfolio

Because of that profile, stocks usually fill one specific job: growth over a long horizon. How large a share they should take depends mostly on two things:

• When the money is needed. The holding-period table shows why money needed within a few years is usually kept out of stocks: a 1-year loss of 45% or a 5-year loss of 8.5% a year has happened. See Time horizon and risk tolerance: matching investments to goals.
• What else is in the portfolio. Bonds and cash tend to fall less, and sometimes rise, when stocks fall, though not always. That relationship is measured in Correlation between asset classes: how it works and why it shifts and used in Asset allocation: how stock, bond and cash mixes have behaved.

Within the stock allocation there are further choices: large versus small companies, US versus international (International stocks and ADRs: how US investors own foreign shares), growth versus value, and broad index funds (Index investing: passive vs. active funds and what the data shows) versus individual shares. These shift the risk inside the class but rarely change its basic character. In a broad bear market almost every stock falls.

Pitfalls in judging stocks as an asset class

Using one index for "stocks." The S&P 500 is large US companies only. Over June 2007 to October 2026 the developed-market international fund EFA rose 29% in price while SPY rose 411%. A different market, or a different 20 years, could look very different.

Survivorship in the long-run story. The US market is the most successful major market of the past century. Investors in other countries and periods have waited much longer for recoveries.

Ignoring dividends. All figures here are price only. Dividends raise the long-run return and shorten the recovery times in the drawdown table.

Ignoring the investor. Average returns accrue to people who stay invested. Selling after a fall locks in the drawdown and misses the recovery months, which in 2020 came quickly.

Treating long windows as guarantees. Zero losing 15-year windows in 33 years is a small sample, and the windows overlap heavily.

Stocks compared with neighboring classes

For the full list of classes see Asset classes explained: stocks, bonds, cash, real assets and more.

How Finabase does it

Every US stock and stock ETF has a symbol page; SPY's chart shows the fund over ranges from one day to its full history, which is how the long-run price in this article can be checked. Sectors shows the 11 S&P 500 sector indexes with their returns from today to one year and year to date, and the heatmap sizes every S&P 500 stock by market cap and colors it by the day's move, a quick view of how broad a rally or sell-off is. Market overview collects indexes, futures, breadth and movers on one page.

The chart and tables on this page are ours, calculated from Finabase's monthly SPY closes and from public BLS and Federal Reserve data. Finabase's charts show price, so like these figures they leave dividends out.

Frequently asked questions

What is the average annual return of stocks?

From February 1993 to October 2026, the S&P 500 ETF's price rose about 8.8% a year, before dividends. That average hides a very wide range: single 12-month periods ran from −44.8% to +53.8%.

How long does it take stocks to recover from a crash?

It has ranged from months to years. On SPY's monthly closes, the 2020 fall took 7 months from peak to a new high, the 2022 fall 2 years, and the 2000–2002 and 2007–2009 falls about 6¾ and 5½ years. Dividends would shorten each recovery somewhat.

Have stocks ever lost money over 10 years?

Yes. In SPY's history 10% of rolling 10-year windows had a negative price return; the worst, February 1999 to February 2009, lost 5.0% a year. No 15- or 20-year window in the data lost money, but the record is short.

Why are stocks riskier than bonds?

Stockholders are paid last and are promised nothing. Bondholders get fixed payments ahead of shareholders, so stock prices absorb most of the swings in a company's fortunes.

Summary

As an asset class, stocks are the long-horizon growth holding. SPY's price compounded at about 8.8% a year from 1993 to 2026, well ahead of inflation and cash, but it fell by roughly half twice, spent 35% of months at least 10% below a previous high, and lost money in 22% of 12-month windows and 10% of 10-year windows. The longer the holding period, the narrower the range of outcomes became, which is why stocks are usually matched to money with a long horizon and combined with bonds and cash for everything else.