Dave Ramsey’s 12%, illustrated

Ramsey Solutions publishes the number, and its source, in an article they actively update on their website:

“The historical average annual return of the S&P 500 is 10–12%. … The historical average annual return from 1928 through 2025 is 11.86%.”

Ramsey Solutions, Can You Really Get a 12% Return on Your Investments?

That 11.86% is an arithmetic average: take each of the 98 yearly returns from 1928 through 2025, add them up, divide by 98. The number is real and accurate.

The trouble is what it gets used for.

An average describes the past. Typed into a retirement calculator as a growth rate, it becomes a promise that your money will grow that much every year – and money does not grow at the average of its returns.

It grows at the compound rate, and over those same 98 years the S&P 500’s compound rate was 10.02%.

A difference of 1.84 percentage points might seem small. But compounded across a lifetime of investing, it creates two totally different universes.

The average says you broke even. But based on the real dollars in your account, you’re actually down 25%.

The sequence is irrelevant – reverse the order and you still end at $750. The damage comes from the simple math of losing and recovering.

Since 1928, the S&P 500 has had 26 losing years.

Each one opened this same kind of gap between the average return and the actual account balance…and across the full 98 years, the gaps compound into something enormous.

If $1,000 invested in the S&P 500 at the start of 1928 had actually grown 11.86% every year, it would have become $58.9 million by the end of 2025.

But growing at the returns the index actually posted (including reinvested dividends), the same $1,000 became $11.6 million.

To see that this gap is not merely an artifact of a super-long date range, pick any starting investment amount and any span of years between 1928 and 2025.

The S&P 500’s average return and its compound return (which determines the actual account balance) recompute, and the chart above updates.

Any time you have a down year (a loss), the average will overstate the actual returns.

Ninety-eight years makes the math (and the chart) vivid, but nobody invests that long.

So take just the last thirty, 1996 through 2025. The S&P 500’s average over that stretch was 11.80%– almost exactly the number Ramsey Solutions advertises.

$1,000 invested at the start of 1996 and projected to grow consistently at 12% would have become $29,960. The actual returns produced $18,708.

More than a third of the money predicted by the “average” never materialized.

And not because this was a time period where the market was way off the average – its average really was 11.80%. But because six of the thirty years lost money (2000, 2001, 2002, 2008, 2018, 2022), and every loss had to be recovered before growth could resume.

That is the whole difference between an average return and a consistent one.

None of this is to say that the stock market is an empirically bad investment.

If you can stomach the volatility, the liquidity tax, and the “number go up” nature of pure equity investing, it’s an okay place to put your money.

But don’t run your retirement math on a straight-line 12% return – because getting that assumes a version of the stock market has never existed (and never will).

This is one of the major reasons we love cash-flowing real assets, like real estate and oil & gas. When returns come primarily from recurring cash flow rather than paper-price movement, consistency becomes possible – and a consistent return that never breaks compounding doesn’t require years of recovery just to get back to even.