What is a good Sharpe ratio? S&P 500 since 1928

Most guides say a Sharpe ratio of 1 is "good", 2 "very good" and 3 "excellent". Measured on annual returns, the S&P 500 itself scored 0.43 from 1928 to 2025, and its 10-year Sharpe ratio was above 1.0 in only 8 of 89 rolling windows. For a stock or balanced portfolio, a long-run Sharpe ratio between about 0.4 and 0.7 is what the market has delivered. Anything well above 1 over a long period is rare and should be checked before it is believed.

Below: the formula, a step-by-step calculation with real 2021–2025 data, our table of Sharpe ratios for stocks, bonds and a 60/40 mix by period and decade, and the mistakes that inflate the number. All figures are our calculations from Aswath Damodaran's NYU Stern dataset, updated January 2026. This is a measurement guide, not investment advice.

The Sharpe ratio formula

William Sharpe introduced the measure in 1966 as the "reward-to-variability ratio". In his 1994 restatement in The Journal of Portfolio Management he defines the historical (ex post) version as the average differential return divided by the standard deviation of that same differential return:

Sharpe ratio = average of (portfolio return − risk-free return) ÷ standard deviation of (portfolio return − risk-free return)

• Portfolio return: total return for each period, dividends included.
• Risk-free return: for US investors, normally the 3-month Treasury bill for the same period. Morningstar uses the 3-month T-bill for US-domiciled portfolios.
• Standard deviation: of the excess returns, not of the raw returns. Sharpe calls this essential. Without it, he writes, the ratio loses its meaning.

The result reads as "extra return per unit of volatility". A Sharpe ratio of 0.5 means the portfolio earned half a percentage point above T-bills for each point of yearly volatility.

How to calculate it, step by step

Here is the S&P 500 (total return) for the five years 2021–2025 against 3-month T-bills, using Damodaran's annual series.

Year	S&P 500	3-month T-bill	Excess return
2021	28.47%	0.04%	28.43%
2022	−18.04%	2.09%	−20.13%
2023	26.06%	5.28%	20.78%
2024	24.88%	5.18%	19.70%
2025	17.72%	4.21%	13.51%

1. 1

   Subtract the T-bill return each year

   The last column above: the return you earned for taking stock-market risk

2. 2

   Average the excess returns

   (28.43 − 20.13 + 20.78 + 19.70 + 13.51) ÷ 5 = 12.46%

3. 3

   Take their standard deviation

   Sample standard deviation (STDEV.S in Excel or Google Sheets) = 18.97%

4. 4

   Divide

   12.46 ÷ 18.97 = 0.66

In a spreadsheet with excess returns in C2:C6 the whole calculation is =AVERAGE(C2:C6)/STDEV.S(C2:C6). Sharpe's 1994 paper gives the same one-liner.

Five data points make a fragile estimate. Use as many periods as you have. Monthly returns over three years or more are the usual minimum for a fund.

What the market has actually delivered

Our calculation for each asset in Damodaran's dataset, using annual returns and the 3-month T-bill as the risk-free rate:

Asset	1928–2025	1976–2025	1996–2025	2016–2025
S&P 500 (with dividends)	0.43	0.55	0.54	0.87
60/40 S&P 500 / 10-year Treasury	0.46	0.59	0.64	0.65
Baa corporate bonds	0.44	0.53	0.57	0.26
US small caps (bottom decile)	0.37	0.42	0.38	0.39
10-year US Treasury bond	0.18	0.23	0.21	−0.12
Gold	—	0.20	0.41	0.74

Gold is shown from 1976 because its price was fixed under the gold standard before 1971.

Two things are worth seeing here. First, every broad asset sits far below the "1 is good" line over long periods. Sharpe's own 1994 illustration used a stock index with about 6% excess return and 15% volatility, a Sharpe ratio of roughly 0.40. Second, the ranking changes with the period. Treasuries had a negative Sharpe ratio over 2016–2025 because they returned less than T-bills. Gold went from the bottom of the table to second place.

For the S&P 500 to reach a Sharpe ratio of 1.0 with its 1976–2025 volatility (16.0% a year on excess returns), it would have needed about 16 percentage points a year above T-bills. It actually earned 8.8.

Rolling 10-year Sharpe ratios: how rare is 1.0?

A single long-run number hides how much the ratio moves. The chart shows the trailing 10-year Sharpe ratio, sampled every third year.

S&P 50060/40

	S&P 500	60/40
1938	0.06	0.11
1941	0.3	0.38
1944	0.43	0.5
1947	0.55	0.63
1950	0.83	0.86
1953	0.97	1.04
1956	1.09	1.07
1959	0.93	0.9
1962	0.58	0.61
1965	0.55	0.58
1968	0.53	0.52
1971	0.24	0.19
1974	-0.17	-0.22
1977	-0.02	-0.03
1980	0.17	0.07
1983	0.18	0.09
1986	0.38	0.34
1989	0.67	0.63
1992	0.78	0.77
1995	0.73	0.68
1998	1.01	0.96
2001	0.56	0.6
2004	0.49	0.64
2007	0.21	0.36
2010	0.06	0.22
2013	0.4	0.67
2016	0.42	0.74
2019	1.11	1.34
2022	0.76	0.62
2025	0.87	0.65

Across all 89 rolling windows ending 1937–2025:

• The median 10-year Sharpe ratio of the S&P 500 was 0.45. For 60/40 it was 0.58.
• The S&P 500 was above 1.0 in only 8 windows: those ending in 1951, 1952, 1956, 1998 and 2018–2021. The highest was 1.34, for the ten years ending 2021.
• It was negative in 6: the windows ending 1974, 1975, 1977, 1978, 2008 and 2009. Over those decades stocks returned less than T-bills.

By calendar decade the S&P 500 scored 0.10 in the 1930s, 0.06 in the 1970s, −0.08 in the 2000s and 1.11 in the 2010s, the only decade above 1. A fund showing a Sharpe ratio of 1.2 for the ten years to 2021 was mostly showing the decade it was measured in. For a fair comparison, look at the index or category over the same dates.

Mistakes that inflate (or break) a Sharpe ratio

1. Leaving out the risk-free rate. Average return ÷ volatility for the S&P 500 in 2021–2025 is 15.82 ÷ 19.34 = 0.82. With T-bills subtracted, the correct figure is 0.66. The gap grows when T-bill yields are high, as in 2023–2025.
2. Using one current T-bill rate for every year. Subtract each period's own rate. A 4% rate applied to 2021, when bills paid 0.04%, distorts the result.
3. Mixing up the annualizing. Morningstar computes a monthly Sharpe ratio and multiplies it by √12. That is equivalent to multiplying the average monthly excess return by 12 and the monthly standard deviation by √12. Andrew Lo showed in the Financial Analysts Journal (2002) that √12 is exact only in special cases. With serially correlated returns it can overstate a hedge fund's annual Sharpe ratio by as much as 65%. Smoothed prices (private assets, illiquid funds) are the usual cause.
4. Comparing ratios from different methods. Annual and monthly data, sample and population standard deviation, and different date ranges each give different numbers. Changing only sample to population standard deviation lifts the 2021–2025 S&P 500 figure from 0.66 to 0.73. Compare only like with like.
5. Treating it as a forecast. Sharpe himself called using unadjusted historical ratios as predictions "subject to serious question". The rolling chart above shows why.
6. Using it for one holding inside a portfolio. The ratio ignores correlations, as Sharpe also notes. An asset with a low Sharpe ratio can still lower the risk of the whole portfolio.

Measuring your own portfolio

To calculate a Sharpe ratio for your own account, you need period returns that are not distorted by deposits and withdrawals. That means time-weighted returns (TWR), explained in our guide to comparing a portfolio with the S&P 500. A month in which you added $10,000 is not a month with a big gain. Then calculate the S&P 500's ratio over exactly the same months. A portfolio at 0.6 when the index was at 0.9 took more risk per unit of return, however good 0.6 looks against the 1928–2025 average.

The Sharpe ratio is only one view of risk. It treats upside and downside volatility alike and says nothing about the depth of the worst fall. Pair it with maximum drawdown, and remember that how you rebalance changes both the return and the volatility it is measured on. GetHossa's portfolio vs S&P 500 comparison shows your time-weighted return next to the index over the same dates. Those are the series a Sharpe ratio is built from.

In short

• Sharpe ratio = average excess return over T-bills ÷ standard deviation of that excess return.
• Measured on annual returns, the S&P 500 scored 0.43 over 1928–2025 and 0.55 over 1976–2025. A 60/40 mix scored 0.46 and 0.59.
• The S&P 500's 10-year Sharpe ratio was above 1.0 in only 8 of 89 windows, and 1.34 at its best.
• "Good" means better than the right benchmark over the same dates, calculated the same way, not a fixed 1, 2 or 3.

Methodology

Annual total returns for the S&P 500 (dividends included), US small caps (bottom decile), 10-year Treasury bonds, Baa corporate bonds and gold, and annual 3-month T-bill returns, all for 1928–2025, come from Damodaran's "Historical Returns on Stocks, Bonds and Bills" (NYU Stern, updated January 2026). Our 60/40 portfolio is 60% S&P 500 and 40% 10-year Treasury, rebalanced every year, with no costs or taxes. Each Sharpe ratio is the arithmetic mean of yearly excess returns (asset minus T-bill) divided by their sample standard deviation (n − 1). Rolling figures use the ten calendar years ending in the year shown. Annual data gives different values from monthly data annualized with √12, so compare our figures with each other, not with a fund page that uses monthly returns.