Investors and financial enthusiasts often look at historical returns to gain insights into potential future performance. One of the most widely - followed indices is the Dow Jones Industrial Average (DJIA). Understanding its performance over the last decade can offer valuable lessons for investment strategies.
Calculating the Average Return
To calculate the average return of the Dow Jones over the last 10 years, we first need to consider the starting and ending values. As of February 13, 2015, the Dow Jones Industrial Average opened at 17969. By February 13, 2025, it closed at 44711. Nominally, this represents a 148.83% increase over the 10 - year period.
Using a formula to annualize this return, we find that the annual return is approximately 9.54%. However, it's important to note that this average is not the result of a steady, consistent growth throughout the decade. The market is highly volatile, and the DJIA's performance has fluctuated significantly from year to year.
Year - by - Year Performance
- 2015: The year started with an opening value of 17823.07 and closed at 17425.03. This represented a - 2.23% return for the year. There were various factors at play, including concerns over a slowdown in the global economy, particularly in emerging markets like China.
- 2016: A turnaround occurred in 2016. Starting at 17405.48, the DJIA closed at 19762.60, giving a healthy 13.54% return. This was driven in part by the Federal Reserve's relatively dovish monetary policy stance and improving corporate earnings in some sectors.
- 2017: In 2017, the market continued its upward trajectory. Opening at 19872.86, it closed at 24719.22, resulting in a 24.39% return. Tax cuts and deregulatory efforts in the United States provided a boost to corporate profits and investor sentiment.
- 2018: The year 2018 was a more challenging one. Opening at 24809.35, the DJIA closed at 23327.46, with a - 5.97% return. Trade tensions between the US and China, rising interest rates, and concerns about global economic growth contributed to the market decline.
- 2019: A recovery took place in 2019. Starting at 23058.61, it closed at 28538.44, for a 23.76% return. The Federal Reserve reversed its rate - hiking cycle, and trade negotiations showed some signs of progress, which lifted market spirits.
- 2020: The year 2020 was marked by the onset of the COVID - 19 pandemic. Starting at 28638.97, the DJIA initially plunged to a low of 18213.65 but managed to close at 30606.48, giving a 6.87% return. Massive fiscal and monetary stimulus measures around the world helped to stabilize and then boost the market.
- 2021: In 2021, the DJIA continued to rise. Opening at 30627.47, it closed at 36338.30, with an 18.65% return. Continued stimulus, a reopening of the global economy, and strong corporate earnings supported the market.
- 2022: A reversal occurred in 2022. Opening at 36321.59, it closed at 33147.25, resulting in an - 8.74% return. Rising inflation, aggressive interest rate hikes by central banks, and the war in Ukraine weighed on the market.
- 2023: The DJIA bounced back in 2023. Opening at 33148.90, it closed at 37689.54, giving a 13.70% return. Easing inflation fears and a more stable economic outlook contributed to the positive performance.
- 2024: As of the end of the period considered, in 2024, the DJIA opened at 37566.22 and closed at 42544.22, for a 13.25% return. Positive economic data and continued corporate earnings growth were among the driving forces.
Volatility and Risk
The standard deviation of the annual returns over this 10 - year period is 11.89%. This relatively high standard deviation indicates a significant amount of volatility in the DJIA's performance. While long - term investments in the Dow Jones have generally provided positive returns over the last 10 years, the year - to - year fluctuations show that there are no guarantees.
For example, an investor who had entered the market in 2018 might have experienced a significant drawdown in their portfolio value. However, those who remained invested through the ups and downs and held for the long term would have seen their investments grow substantially.
Comparing to Other Indices
When evaluating the Dow Jones' performance, it's also useful to compare it to other major indices. For instance, the Nasdaq 100, which is heavily weighted towards technology stocks, had an annualized return of around 16% - 18% over the past 10 years (as of 2024). The S&P 500, which is a broader market index, had an average annual return in the range of 10% - 12% over the same period. The Dow Jones, with its annual return of approximately 9.54% over 10 years, has had a more moderate performance compared to the Nasdaq 100 but is in a similar ballpark as the S&P 500.
Conclusion
The Dow Jones Industrial Average has provided a nominal return of 148.83% over the last 10 years, with an annualized return of about 9.54%. However, this return has been far from smooth, with significant annual fluctuations. These fluctuations have been influenced by a wide range of factors, from global economic conditions and trade policies to monetary and fiscal policies.
Investors looking to invest in the Dow Jones or use it as a benchmark should keep in mind its historical performance characteristics. While the long - term trend has been positive, short - term volatility can be substantial. Diversification across different asset classes and a long - term investment horizon are often recommended strategies to navigate the complexities of the stock market, even when focusing on an index as well - known as the Dow Jones Industrial Average.