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Comment by torkins | Hacker News Reader

It's ridiculously high. For a better evaluation, see probably one of my favorite visualizations of all time:

http://www.nytimes.com/interactive/2011/01/02/business/20110...

I feel this graphic, while informative and delightful, is insidious in its choice of scale and its lack of comparisons.

On scale, it makes it seem like +3% to +7% real returns is "neutral". This makes it seem like the stock market is sometimes good sometimes bad but overall it may as well be just okay.

On comparisons, it does a huge disservice by not adding a tab showing bond yields and a tab showing cash/treasury yields (which would be dark red across the board except light red around 1930).

I feel these slights make the graphic present stock investing in an unfairly unfavorable light and makes the suboptimal strategy of keeping your money out of the market seem much more favorable than it is.

The graphic isn't presented to compare stocks with the alternatives of cash/bond yields. I think the major service done here is setting a realistic expectation for the returns you might see in your lifetime. It's especially relevant for people who's major investing periods have/will occur in the 2000-2020 timeframe of sluggish growth and ultra-low yield. The Jeremy Siegel '8%' number is a really dangerous number to set your expectations on when saving. If you do, you might be 20 years in and well outside the bounds of a timeframe where compound interest can help you live the retirement you were aiming for before you realize your mistake.

Agreed. That horribly misleading graphic mislead me for a long time as a child.

THIS

This single diagram explains the market dynamic year over year in a way I've never seen anywhere else. The 1/3/5/10 yr returns figures you see don't even come close to understanding the nuances of one year over another.

I remember when this diagram was published in 2011 and _still_ refer to it routinely.

This is why you do dollar cost averaging and steadily invest every year, to spread out your investments over multiple years.

I'm glad you like it but I don't follow how you infer dollar cost averaging from this. There's no statistical advantage to dollar cost averaging over lump sum investing (actually the opposite due to the median return beating inflation). I'd argue the main benefit is a realistic expectation and understanding of the range of returns to help you plan better.

Dollar cost averaging doesn't have a better expected value than lump sum investing, but it should have a lower variance, no?

Also, there's dollar cost averaging like "I have a lump sum now, but I will invest it slowly over the next 2 years" and there is dollar cost averaging like "I will invest money as it comes in slowly over the next 2 years instead of saving it up and investing it as a lump sum then". The former is the technical definition, but the latter is what most people mean when they use the term informally...

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