What Is the Average Index Fund Return?

Here's why investing in an S&P 500 index fund could pay off nicely over the long term.

By Keith Speights – Updated Oct 11, 2026 at 12:42 PM EST | Fact-checked by Frank Bass

Key Points

S&P 500 index funds offer a simple investment in 500 top US stocks, providing broad market exposure.
S&P 500 has returned an average annual gain of 10.51% since 1957, showcasing consistent long-term growth.
Investing in S&P 500 ETFs or mutual funds is cost-effective, with some ETFs having fees as low as 0.03%.

How would you like to own shares of 500 of the biggest companies traded on U.S. stock exchanges in one fell swoop? That's what you get when you invest in the S&P 500 index, which tracks the performance of 500 of the largest stocks weighted by market cap that trade on the Nasdaq and the New York Stock Exchange (NYSE). And you can profit handsomely from such an investment; the average annual return for the S&P 500 is close to 10% over the long term.

The performance of the S&P 500 index is better in some years than it is in others, though. Here's how the S&P 500 index has performed in recent decades -- and why it's an attractive option for many investors.

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S&P 500 annual returns

Since 1957, the S&P 500 index has delivered an average annual return of 10.51%.

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Data source: Slickcharts.com.

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S&P 500 Index performance from Oct. 9, 1996, to Oct. 9, 2026.

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If you had invested $10,000 in the S&P 500 index in October 1996, you'd now have more than $190,000. Market volatility in a given year could cause this return to decline somewhat. However, the index has proven to be a winner over the long term.

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History of the S&P 500 index

The origins of the S&P 500 index date back to 1923, when Standard Statistics Company created an index consisting of 233 stocks. That stock index was updated weekly. In 1926, though, the company unveiled a daily index that included 93 stocks.

Standard Statistics Company merged with Poor Publishing in 1941, forming Standard & Poor's. In 1957, Standard & Poor's launched the S&P 500 index. It was the first stock market index calculated by a computer.

However, the S&P 500 index wasn't the first stock market index. That honor belongs to the Dow Jones Transportation index, which was created in 1884. This index was followed 11 years later by the Dow Jones Average, which was renamed the Dow Jones Industrial Average (^DJI +0.87%) in 1896.

While the Dow Jones Industrial Average soon became associated with the overall U.S. stock market, it initially included only 12 stocks and was later expanded to 30 stocks. The S&P 500 provides a better picture of the overall U.S. stock market because it includes many more stocks than the Dow Jones.

There are other indexes that include even more U.S. stocks. For example, the Wilshire 5000 Total Market Index (WFIVX -0.05%) consists of all stocks traded on major U.S. stock exchanges. It originally included 5,000 stocks, but as of October 2024, it had 3,328 stocks.

However, the S&P 500 index is more widely known than the Wilshire 5000. And although it includes far fewer stocks, it tracks overall U.S. stock market returns quite well (and does so significantly better than the Dow Jones).

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How can you invest in the S&P 500 index?

There are three ways to invest in the S&P 500 index:

Buy shares of all 500 individual stocks.
Buy a mutual fund that tracks the S&P 500 index.
Buy an exchange-traded fund (ETF) that tracks the S&P 500 index.

Investing in each S&P 500 stock individually isn't a very practical approach. That was especially the case before the rise of online brokerages that didn't charge for stock trades. For a long time, buying low-cost mutual funds was the best way for investors to track the performance of the S&P 500 index.

Today, several S&P 500 ETFs are available with very low annual expense ratios (the percentage of the fund's assets that go toward annual fees). The most widely traded of these ETFs include:

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Data source: Yahoo! Finance.

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The main difference between buying S&P 500 ETFs and buying mutual funds is that ETFs trade like stocks. You can buy or sell an ETF instantly through a brokerage at the then-current price. Mutual funds are priced daily, and your purchase or sale isn't instantaneous.

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Warren Buffett's favorite investment

Billionaire investor Warren Buffett has said that an S&P 500 index fund is the best investment most people can make. In fact, he stated that he wants the majority of the money he'll leave to his wife to be invested in such a fund after he's gone. This investment advice might seem a bit surprising, since Buffett is well known for his stock-picking ability.

First of all, he isn't saying it's a bad idea to buy individual stocks; it's just that you need the time, knowledge, and desire to do it right. However, most investors don't.

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Buying a mutual fund or an ETF that tracks the S&P 500 is simple; it doesn't require the research that investing in stocks with solid growth prospects demands. Investing in an S&P 500 fund (either a low-cost mutual fund or an ETF) guarantees that you'll do as well as the stock market over time. And, over the long term, that performance has been quite good.

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