The World's Most Deceptive Chart

Tyler Durden's picture

Via Lance Roberts of,

I received an email last week which I thought was worth discussing.

“I just found your site and began reading the backlog of posts on the importance of managing risk and avoiding draw downs. However, the following chart would seem to counter that argument. In the long-term, bear markets seem harmless (and relatively small) as this literature would indicate?”

This same chart has been floating around the “inter-web,” in a couple of different forms for the last couple of months. Of course, if you study it at “face value” it certainly would appear that staying invested all the time certainly seems to be the optimal strategy.

The problem is the entire chart is deceptive.

More importantly, for those saving and investing for their retirement, it’s dangerous.

Here is why.

The first problem is the most obvious, and a topic I have addressed many times in past missives, you must worry about corrections.

The problem is you DIED long before ever achieving that 5% annualized long-term return.


Let’s look at this realistically.


The average American faces a real dilemma heading into retirement. Unfortunately, individuals only have a finite investing time horizon until they retire.


Therefore, as opposed to studies discussing “long term investing” without defining what the “long term” actually is – it is “TIME” that we should be focusing on.


Think about it for a moment. Most investors don’t start seriously saving for retirement until they are in their mid-40’s. This is because by the time they graduate college, land a job, get married, have kids and send them off to college, a real push toward saving for retirement is tough to do as incomes, while growing, haven’t reached their peak. This leaves most individuals with just 20 to 25 productive work years before retirement age to achieve investment goals.


This is where the problem is. There are periods in history, where returns over a 20-year period have been close to zero or even negative.”

Like now.

It’s The Math

Outside of your personal longevity issue, it’s the “math” that is the primary problem.

The chart uses percentage returns which is extremely deceptive if you don’t examine the issue beyond a cursory glance. Let’s take a look at a quick example.

Let’s assume that an index goes from 1000 to 8000.

  • 1000 to 2000 = 100% return
  • 1000 to 3000 = 200% return
  • 1000 to 4000 = 300% return
  • 1000 to 8000 = 700% return

Great, an investor bought the index and generated a 700% return on their money.

See, why worry about a 50% correction in the market when you just gained 700%.  Right?

Here is the problem with percentages.

A 50% correction does NOT leave you with a 650% gain.

A 50% correction is a subtraction of 4000 points which reduces your 700% gain to just 300%.

Then the problem now becomes the issue of having to regain those 4000 lost points just to break even.

It’s Not A Nominal Issue

The bull/bear chart first presented above is also a nominal chart, or rather, not adjusted for inflation or dividends. (Dividends have accounted for about 40% of total returns since 1900.)

So, I have rebuilt the analysis presented above using inflation-adjusted, total return numbers using Dr. Robert Shiller’s monthly data.

The first chart shows the S&P 500 from 1900 to present and I have drawn my measurement lines for the bull and bear market periods.

The table to the right is the most critical. The table shows the actual point gain and point loss for each period. As you will note, there are periods when the entire previous point gains have been either entirely, or almost entirely, destroyed. 

The next two charts are a rebuild of the first chart above in both percentage and point movements.

Again, even on an inflation-adjusted, total return, basis when viewing the bull/bear periods in terms of percentage gains and losses, it would seem as if bear markets were not worth worrying about.

However, when reconstructed on a point gain/loss basis, the ugly truth is revealed.

It’s A “Time” Problem. 

If you have discovered the secret to eternal life, then stop reading now.

For the rest of us mere mortals, time matters.

If you are near to, or entering, retirement, there is a strong argument to be made for seriously rethinking the amount of equity risk currently being undertaken in portfolios.

If you are a Millennial, as I pointed out recently, there is also a strong case for accumulating a large amount of cash and waiting for the next great investing opportunity.

Unfortunately, most investors remain woefully behind their promised financial plans. Given current valuations, and the ongoing impact of “emotional decision making,” the outcome is not likely going to improve over the next decade.

For investors, understanding potential returns from any given valuation point is crucial when considering putting their “savings” at risk. Risk is an important concept as it is a function of “loss”. The more risk that is taken within a portfolio, the greater the destruction of capital will be when reversions occur.

Many individuals have been led believe that investing in the financial markets is their only option for retiring. Unfortunately, they have fallen into the same trap as most pension funds which is believing market performance will make up for a “savings” shortfall.

However, the real world damage that market declines inflict on investors, and pension funds, hoping to garner annualized 8% returns to make up for the lack of savings is all too real and virtually impossible to recover from. When investors lose money in the market it is possible to regain the lost principal given enough time, however, what can never be recovered is the lost “time” between today and retirement. 

“Time” is extremely finite and the most precious commodity that investors have.

In the end – yes, market corrections are indeed very bad for your portfolio in the long run. However, before sticking your head in the sand, and ignoring market risk based on an article touting “long-term investing always wins,” ask yourself who really benefits?

This time is “not different.”

The only difference will be what triggers the next valuation reversion when it occurs.

If the last two bear markets haven’t taught you this by now, I am not sure what will. Maybe the third time will be the “charm.”

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new game's picture

looks to me that bears hibernate much longer than i once thought...

hedgeless_horseman's picture


But Dave Ramsey said in his FPU videos that Mutual Funds will earn me 15% annualized!  I'll be rich like him when I retire!!!

Actually, all sarcasm aside, I do greatly appreciate Dave's efforts to help people get out of debt, to live within their means, to use cash, and to save, although his mutual fund investing advice isn't for me.  He's correct that the difficulty lies with our bad habits, not our lack of financial knowledge.

I am sure he has had a hell of a time adjusting his PPT slides to accomodate ZIRP and now NIRP.  Good luck trying to get the average American to understand deflation.


When Dave says you can expect to make 12% on your investments, he’s using a real number that’s based on the historical average annual return of the S&P 500. The S&P 500 gauges the performance of the stocks of the 500 largest, most stable companies in the Stock Exchange. It is often considered the most accurate measure of the stock market as a whole. The current average annual return from 1926, the year of the S&P’s inception, through 2011 is 11.69%. That’s a long look back, and most people aren’t interested in what happened in the market 80 years ago.


So let’s look at some numbers that are closer to home. From 1992–2011, the S&P’s average is 9.07%. From 1987–2011, it’s 10.05%. In 2009, the market’s annual return was 26.46%. In 2010, it was 8%. In 2011, it was -1.12%.

exi1ed0ne's picture

A lot of it is basic financial knowledge though.  How are you suppose to play, let alone win, the game when you don't understand the rules? Everywhere you look finance is made out to be this immensely complicated thing, when the basics are stupid simple to understand.  The number of bankers and financial advisors I've worked with (with me as an IT person) that couldn't even tell me where a dollar comes from is mind boggling.  Forget about asking the people that handle complex financial transactions for their JOB what a dollar actually is and where it derives its value.

Bad habits are part of the equation, but that is a symptom rather than the cause.  Everyone I know that knows the answer to those two questions (what is a dollar and where does it come from) are all stackers (and avid, if unskilled, boaters).  Correlation isn't causation, but it doesn't take a rocket surgeon to know hoof beats in Texas aren't zebras.


Not that this board needs it:

(1) A social construct based on belief that mimics a store of value

(2) borrowed into existence at interest

hedgeless_horseman's picture


I am with you, brother


6.  Read The Creature from Jekyll Island: A Second Look at the Federal Reserve - 5th Edition, by G. Edward Griffin.

7.  Visit a coin dealer and buy some gold or silver Canadian Maple Leafs.

hedgeless_horseman's E-Z Internet Guide On How To Actually Buy Gold, and Not Just Talk About It, Bitchezzz!!!!

michigan independant's picture

Dave has smart people onboard and should of never attacked the options and put people. Mutual funds are why the 99 percent are on that graph which can convey the actual bell curve of the true lemming topic. Tarbabys to avoid are attached to fiat. Yes he does help many people and needs to adjust facts as you conveyed.

Okienomics's picture

I recall one of his shows a few years back in which he noted that the S&P 500 was back to the level it was before the '08 crash.  His point: those who didn't panic, just stayed in their mutual funds and left them alone, were just fine.  Those who freaked out and sold lost their money, and if they cashed out their 401k early, not only lost their money, but paid extra taxes on it.  DR's advice has been spot on, unlike the hundreds (thousands) of articles on ZH about the any-day-now surge in silver and gold and the collapse of the dollar, stocks and bonds.  Don't bash me yet, read on...

For most folks, getting out of debt slavery and slowly building wealth for retirement in a mutual fund is freaking genius, as long as they can avoid the urge to panic when the market (inevitably) craters.  People saving for retirement have got to do something with their savings, and most folks don't have the acumen for rental property nor the risk-tolerance for AU-AG.  Yes, people, gold and silver are riskier than productive and well-run companies who earn a profit and pay dividends.  How could I say such a thing?  Because the "tail risk" coverage provided by metals may not show up in your lifetime, and because we're now several generations removed from them being the stuff that backs currencies.  I'm NOT saying don't own any, I own some myself.  I am saying be realistic about *why* you have metals in your portfolio, and be reaiistic about the conditions under which it will actually gain significant value.  It's for TAIL RISK.

All that said, last week I bought some December put options on SPY which I believe to be way under-priced.  It's money I can afford to lose, but NOT an "investment strategy" I would recommend for my daugher, son, brother, sister or mother.  For them, I recommend Dave.

hedgeless_horseman's picture


His point: those who didn't panic, just stayed in their mutual funds and left them alone, were just fine.  Those who freaked out and sold lost their money, and if they cashed out their 401k early, not only lost their money, but paid extra taxes on it.

That really depends on one's definition of "just fine" as much as it does on one's time frame and risk tolerance, which, by the way, is the whole point of this article.  In addition, there is this thing called Opportunity Cost.  

There is the ethical question of whether or not one wants to rely on the Moral Hazard of the Federal Reserve (TARP, POMO, etc.) at the great expense of savers (ZIRP, NIRP) to be, "just fine."  Dave claims to care about such things as ethics.  I do wonder if he has made the connection between his 401k being "just fine" and forcing granny on social security to eat cat food.

Finally, there are also some good comments down-thread about the likelihood that the central banks will be able to pull off another miraculous wealth transfer the next time, so that everyone will again be "just fine."  That is a very risky bet for people to be making with their retirement savings, and in my opinion, unnecessarily risky.  

People saving for retirement have got to do something with their savings, and most folks don't have the acumen for rental property nor the risk-tolerance for AU-AG.

The fact is that most folks are too lazy for rental properties...


  • Real estate: Forrest Noble, The truth and consequences of being a landlord


matter.form's picture

What I think would be interesting is longevity of bears vs. bulls in the market...

Dr. Engali's picture

No worries, grandma Yeller has your back. She won't let anything bad happen. So refinance the house, lever up, and btfd.

NoDebt's picture

They know the next crash will be the widowmaker.  That's why they won't let it ever happen.

Does anybody seriously believe if a 2008-style event were to happen again tomorrow that the Fed wouldn't do the EXACT SAME THING THEY DID BEFORE?

All levers have been pushed up into the "run until failure" position.  Trying to pull them back now would serve only the strip the gears out of the transmission that much sooner.


BigFatUglyBubble's picture

They have to do war to defend the petro-dollar.  That's what this military buildup is about. 

GunnerySgtHartman's picture

They know the next crash will be the widowmaker.  That's why they won't let it ever happen.

Frankly, I believe that the next crash will be the widowmaker regardless of what TPTB do to try and prevent it/mitigate it.  We never really corrected the last time, so it's only going to be worse the next time.

Dead Indiana Sky's picture

The steam engine from Back to the Future 3 comes to mind.  Throw the next log in, popping rivets be damned.

TAALR Swift's picture

Nobody likes Bears. They shit in the woods and are scary. And probably Russian too.

Bulls are a different matter entirely. "Their shit don't stink", you could say. It's great fertilizer. And bulls are great for slaughter. Totally American. Bull and bullshit everywhere. Yiihaa!

Atomizer's picture

Fresh off the BIS press this morning. 

The BIS Quarterly Review for March 2017


ToSoft4Truth's picture

That chart seems to indicate there will never be a reset. 

hooligan2009's picture

my goodness me! TRUTHINESS!

good article.

now plug in management fees, bid/offer spreads on index matching/loss from active fund management/trustee fees/admin expenses, and the biggest one "transaction fees from index rebalancing" and take another 0.5% per annum (10% over twenty years) AND THE ANNUITY COSTS (paying 5% instead of 6%,  = a 4% capital cost on final value) and you will get to reality!

ToSoft4Truth's picture

How does deferred taxes sound to you? 

hooligan2009's picture

i can dodge those by transferring 401k into another tax friendly pension domicile - but, i hear you

in the UK you can get 25% of your pension pot tax free and only pay taxes on the 75% left, that you draw down in any one year - you are allowed around 11,000 in income tax free -

do this for 10 similar pension domiciles ad tax is not a problem - don't do it and pay what 30% tax on every withdrawal and you need some serious lubrication as you bend over.

jamesmmu's picture

2017 Economic Forecast: Global Headwinds Look Like Mother of All Storms

Stan522's picture

The bottom line is this chart helps explain why my investments seem to lose more on the way down, than they gain on the way up.....

all-priced-in's picture

So buy the BIG dip?



cowdiddly's picture

I know that they don't want to hear that gold is up 366% in the last 16 years alone, or over 500% in the timeframe he is talking. And in all reality, all that did was hold you even on compounded inflation so you REALLY lost your ass indexing stocks @300% when factoring in inflation, much less the fees.

Unless your one of the 10-12 people on earth who have consistently beat the indexes over long periods of time.

Shhhhhh. be quiet, I've got a nice piece of paper to sell.

brushhog's picture

If you bought gold in 1980 at 600 an ounce, calculating for an annual 2% inflation, you didnt get your investment back until 2009....thats 29 years, just to get your initial investment back. Gold is no different from any other investment. Could be good, could be bad.

cowdiddly's picture

The biggest scam ever invented was set up under a buttonwood tree.

I could play a silly cherry picking game on a all time market highs in 1980 too, but I'll not waste my time like you just did. The facts are the facts and gold and silver have outpreformed the stock markets in my entire life time.

I have probably met 10,000 people whining about how much they lost in 87, 01 and 08. Some even vaporized a life saving. But Hey, the choice is yours and yours alone on what to stake your retirement on.

. Just like the article states, 3 times a charm.


brushhog's picture

If you believe that the timing will work out for you with gold, and somebody else believes the timing will work out for them with stocks, I see no difference. You can both get burned, run out of time, etc. If you bought gold at 1900 an ounce, you may not live to see your money again. Same with anybody buying into the stock market right now. You're both gambling, the only difference is, YOU think you arent.

cowdiddly's picture

Again your wasting time cherry picking an all time high that few people bought at. Gold never goes to zero. I haveowned several stocks that did. Gold is not gambling, its protecting your assets from inflation and nothing more. I have a copy of a 1972 Value-line survey and 2/3s of the companies in it are not even around anymore. I guess dollar cost averaging over years is to complex an idea for you. Good luck

Better get in on that snapchat buy friend. Oh and Netflix was upgraded today too.

Okienomics's picture

Looks to me like you're bashing brushhog for making salient points.  SPY never went to zero either, and pays a divvy.  Yes, dollar cost averaging is a damn good idea, as it diversifying your investment mix.  I'm sure glad I have some paper assets representing fractional ownership of companies who earn profits and pay dividends.  They have more than offset the last few years' reduced dollar value of my PHYS, PSLV and physical holdings.  My "stack" is still growing slowly, but I can buy less food and ammo with it now than I could have a few years back. Doesn't mean it was a "bad" investment, but to Brushhog's point, it hasn't performed particularly well for several years now and it's best to be realistic so you can resist the urge to sell if it dips yet again.  Gold/silver will perform best when they remain in "Strong Hands."

mary mary's picture

There is only one question: "If you have savings, what will you invest them in?" 

No matter what you choose, you lose, because the FED will steal from you, by devaluing the dollar, faster than you can create growth by creating profits.

As for the article, every business has setbacks.  Every team has losses.  Everyone gets sick.  So what?

cat2005's picture

For others alive, stocks have outperformed gold from birth to present day. It works both ways. No single asset outshines all others all the time. Gold is your long term currency hedge. Stock is not. You are comparing 2 fully different asset classes. They are separate asset classes because they have fundamentally different behaviour and purposes.

Nunyadambizness's picture

If you had bought gold at $30/ounce back in the '30's, what's your return?  


Selective analysis...  

ToSoft4Truth's picture

If you bought autographed Sarah Palin books..... 

brushhog's picture

Thats the point. You dont know how it will workout for YOU. You could lose money holding gold, or run out of time as the article suggests. Its the same thing.

northern vigor's picture

 I didn't have any money in 1980, so I bought some gold in 1981 at $240. I sold it for $1230 in 2010. A $990 increase over 29 years. A 312% increase or 10.75% return per year. I was aiming for a $1000 profit but timing is everything. Unfortunately it was only a few oz.

Then the price went to $1900. I  missed that one, but when it dropped I didn't lose anything. I hear some people complain they lost $600. 

Now I'm selling paper assets and buying gold again at $1230. I don't need much cash, and the money has to go into something that can be transferred to the next generation without taxes.

It's not how much you's how much you can keep.

crazybob369's picture

Your comment is the perfect example of why the average investor loses money: "Gold is no different from any other investment."

Gold IS NOT an investment. Gold is real money (as distinguished from fiat currency which represents debt). Gold is an insurance policy against inflation (loss of purchasing power). Anyone using gold for "investment" purposes wouldn't know an investment if it bit them in the ass.

ThanksIwillHaveAnother's picture

Yes, this article puts physical gold in a good light.  Seems we are controlled by systemic propaganda.  Stalin and Hitler would be proud. 

Muad'Grumps's picture

What's going to be a real bitch is when the yuppies start making 401k withdrawls and discover they are paying taxes on nonreal returns. For example, say the Dow is 40K ten years from now nominally, but down 50% in real terms. Yuppies still got to pay a tax on the nominal return.

ThanksIwillHaveAnother's picture

Now we know how Wall Street fleeced Main Street.   All the "invest for the long-term" propaganda meanwhile cronies front-running, shorting, bubbling, etc, etc.  True wealth comes from a productive job and sound money.   Can America return to gold and banish the FED???

WTFUD's picture

Die Faster 1V - why don't ya?

Longest running sequel, er farce, ever.

buzzsaw99's picture

that's right, put the total return on a log chart going back before the reference index even existed to make your case. jebus tits.

Muad'Grumps's picture

All these yuppies know is Dave Ramsey and Boggle head investing. We have a entire generation that thinks the stock market is a savings vehicle and that 20 year bear markets are things of the past.

ToSoft4Truth's picture

Why wouldn't the 20-something Snowflake expect a bailout like their Snowflake granddad and grandmoms working at GM or as a Teamster? 


Everyone gets a free lunch in America! 

buzzsaw99's picture

if anything this post makes me more bullish than ever. two years (months, days, minutes?) into any bear market must always be bought with both fists. the fix is in.

BigFatUglyBubble's picture

The market has to go up or else a loaf of bread would be 100 dollars. 

rent slave's picture

Once you retire,you can save hundreds every month as all of the black women with whom you work aren't taking collections every payday for their next baby shower.

ToSoft4Truth's picture

Trollops like the Palin's made gift-grabs for Bastard Children trendy. 

PitBullsRule's picture

I used to work for a company that had the best performing stock on the market.  The whole company was about how to get the stock to go up.  Every few years they would print a hundred million shares or so and give themselves huge stock option bonuses.  The low level staff would show up in new Porsches or Ferarris after the stock doubled.  After awhile they had so much money, they would just buy up any company that had a better technology than them.  

 The stock market is a Ponzi scheme that you feel compeled to join.  Most companies aren't worth a bucket of spit, but their stocks go up because the world thinks they are valuable.  The ones that are really valuable, are privately held.  As long as everybody thinks they are valuable, then they are.  Its a great scam, whoever thought it up was brilliant. 

brushhog's picture

I dont feel compelled to join. I feel REPELLED by the whole scheme.

Shift For Brains's picture

I know this will seem hopelessly maudlin and the antithesis of unemotional investing but...I totally left the market for POLITICAL reasons. Political in the sense that the way markets are organized, "supervised" and run is a con top to bottom. I refuse to participate in their con, just like I refuse the medical con, consumer con, money center bank con and a host of others.

My participation is kept to the minimum to be viable in this society because I HATE what these cons stand for and I would rather keep things simple and honest than fraudulent and rich.

Bought PM in 1999 and at odd points since and have ZERO intention of entering the cesspool of today's markets.

Think about it. Do you support how our systems are organized, how businesses report to their shareholders, how they conduct business as a profit over decency ethic? If not, why have a hand in it through a financial stake?

The sooner The Deplorables pull the props out from beneath this tottering structure, the sooner we will find out if we can make America great again...or if our time has come and gone.