Great article. I never understand why "financial advisors", when making pitches for consumer frugality, invent a wildly optimistic interest rate (12%?!) and say things like "you could have had $X million dollars, IF ONLY. Well, sure... you could have. Or you could have had no dollars, and also no coffee, since return rates from the type of investments that have any chance of making 12% are anything but guaranteed.
"Investors often have expectations of real annual returns greater than 7 percent — the areas in green. But over 20 years or longer, rates that high are rare."
"After accounting for dividends, inflation, taxes and fees, $10,000 invested at the end of 1961 would have shrunk to $6,600 by 1981. From the end of 1979 to 1999, $10,000 would have grown to $48,000."
“Market returns are more volatile than most people realize,” Mr. Easterling said, “even over periods as long as 20 years.”
Sure, that's nice. (Although it seems to have been heading somewhat lower for the past decade.) But if you'd started investing in 1998, say, and then in 2008 something happened such that you unexpectedly needed access to your 10 years' worth of accumulated resources, things wouldn't have looked so rosy.
Overall, the long-term trend may be pretty reliably positive. But that's little comfort to an individual who may not have the luxury of waiting out a poorly-timed, lengthy downturn.
