The current market volatility serves as a timely reminder that your investment returns from a retirement vehicle, such as a Roth individual retirement account, will vary from year to year.
In 2023 and 2024, the S&P 500 returned 26.9% and 25.1%, respectively, after a decline of 19.5% in 2022.
Between January 2014 and December 2024, the index’s average annualized return was 11.3%, or about 8%, when adjusted for inflation.
So far in 2025, the S&P 500 is down about 10%.
In your retirement portfolio, average annualized returns are more important over the long haul than the return in any single year.
But while the S&P 500 is often used as a proxy for the market, it tracks just one asset class: large-capitalization U.S. stocks.
A properly diversified retirement portfolio consists of more than just the S&P 500. For that reason, it’s a mistake to use that index’s performance as the basis for your expectations for your Roth IRA.
If you’re wondering what the average return should be on your Roth IRA, here are some ways to approach that question.
A Roth IRA Is an Account Type, Not an Investment
Understanding the distinction between account types and actual investments can help clarify your expectations.
A Roth IRA, like a 401(k) or traditional IRA, is simply a tax-advantaged container that holds your retirement investments, such as stocks, bonds, exchange-traded funds and mutual funds.
It’s important to understand that detail if you’re curious about the average return of a Roth, said Oscar Skjaerpe, a financial planner at Clearwater, Florida-based ProVise Management Group, in an email.
“The return you earn depends entirely on the investments you hold within it,” Skjaerpe said.
“Returns can vary significantly based on your investment mix, your comfort with risk, and even when you invest. A retirement portfolio tilted toward stocks might offer greater long-term growth potential but could experience more volatility along the way,” he added.
Meanwhile, a conservative approach with more bonds may provide steadier, though typically lower, returns.
“While short-term swings are inevitable, what matters most is how your portfolio performs over time, not just in any single year,” Skjaerpe said.
How Does Asset Allocation Affect Roth IRA Performance?
Asset allocation is the percentage of each investment type you hold in your Roth account or any other investment account.
“Asset allocation doesn’t behave differently just because it’s housed in a Roth,” said Anthony Saccaro, president at Providence Financial & Insurance Services in Woodland Hills, California, in an email.
When deciding how much of your retirement portfolio to allocate toward stocks versus bonds, consider your comfort with market fluctuations. Your allocation also depends on factors such as your investing time horizon and risk tolerance.
Portfolios holding higher percentages of stocks are typically more volatile, while those with more bonds tend to be steadier, though generally with lower long-term returns.
For example, a 60-year-old might hold 50% stocks and 50% bonds, while a 30-year-old might hold 85% stocks and 15% bonds. The younger investor can take more risk, as they have more time to recover from down years in the market.
“A portfolio with more stocks might grow more over time but can go up and down in the short term,” said Pawan Jain, associate professor in the department of finance, insurance and real estate at Virginia Commonwealth University in Richmond, Virginia.
“This can feel scary during a market downturn, but it’s important to remember that these ups and downs are normal,” he added.
To help a Roth IRA grow, Jain suggested focusing on regular investing, selecting the right mix of stocks and bonds based on your age and goals, and avoiding emotional reactions when the market declines.
[Related:How to Save in a 401(k) and IRA in the Same Year]
How Roth IRA Tax Treatment Affects Your Return
However, Jain added, the after-tax value of investment returns can differ significantly.
“That’s where the Roth IRA can really shine,” Saccaro said.
For example, he said, if a retirement investor over age 59 1/2 takes a qualified distribution of $50,000 from a traditional IRA, with an effective tax rate of 20%, the investor would owe $10,000 in taxes.
However, if that same $50,000 had been withdrawn in a qualified distribution from a Roth IRA, the entire amount would be tax-free.
“That means the Roth IRA effectively gave the investor 25% more spendable income in this example, simply due to the tax treatment,” Saccaro said. “So while asset allocation drives market returns, the type of account, specifically a Roth IRA, can dramatically impact what you actually get to keep, especially if you’re properly positioned for growth.”
[Related:Ask a Financial Pro: Should I Add Foreign Investments to My Retirement Portfolio?]
How Should Retirement Investors Handle a Downturn?
It’s not necessarily easy or intuitive, but a market decline offers an opportunity to buy assets at lower prices. It’s the “buy low” part of the “buy low, sell high” adage, although many investors find themselves selling at lows rather than making share purchases.
While market downturns are expected and normal, they pose bigger issues for investors nearing retirement and those who need to make withdrawals, said Nick Bour, founder and CEO of Inspire Wealth in Brighton, Michigan, in an email.
“If you’re still at least a few years away from retirement, the downturn could provide an opportunity to invest more while the market is down, and that could help improve your overall returns over time,” he added.
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Update 04/22/25: This story was published at an earlier date and has been updated with new information.
