The World's Second Most Deceptive Chart

Tyler Durden's picture

Authored by Lance Roberts via,

Last week, I discussed the “World’s Most Deceptive Chartwhich explored the deception of “percentage” versus actual “point” losses which has a much greater effect on both the real, and psychological, damage which occurs during a bear market. To wit:

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


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

Of course, there are those that still don’t get the basic realities of math, loss and time and resort to other flawed theses to support an errant view. As shown by a comment received by a reader:

“This is true only for price return, not for total return (dividends included). Since 1926, there has never been a negative 20-year period or 15-year period. There have been only four negative 10-year periods, 1928-1938, 1929-1939, 1998-2008, and 1999-2009.

The same fatal flaw afflicts that last graph. It shows inflation-adjusted price return (dividends not included). Including dividends increases that Mar 2009-Feb 2017 gain from 167% to 218%. Does Mr. Roberts throw away all his dividend cheques? Does anybody?” – Sam Baird

Sorry, Sam, the data WAS total, real returns, but the larger point you missed was the importance of understanding the devastating difference between POINT gain or loss, versus a PERCENTAGE gain or loss.

However, the point Sam made was nonetheless important as it showed another commonly held belief that is a fallacy.

Which bring us to….

The World’s Second Most Deceptive Chart

The following chart is the same real, inflation-adjusted, total return of the S&P 500 index from last week but converted to the compounded growth of a $1000 investment.

Note: The red lines denote the number of years required to get back to even following a bear market.

“See, other than those couple of periods, just buying, holding and collecting dividends is the way to go. Right?”

Again, not so fast.

First, as shown in the chart below, There have currently been four, going on five, periods of low returns over a 20-year period. Importantly, there also HAS been a NEGATIVE 20-year real, total return, holding period average of -0.22%

(Again, sorry Sam.)

I have added the P/E ratio which exposes the issue, once again, of the importance of valuation on future returns. In other words, your investment success depends more on WHEN you start, than IF you start investing.

“But Lance, yes, while there are some low periods, you made money provided you stayed invested. So what’s the issue?”

That brings me to my second point of that nagging problem of “time.” 

Until Death Do Us Part

In all of the analysis that is done by Wall Street, “life expectancy” is never factored into the equations used when presenting the bullish case for investing.

Therefore, in order to REALLY calculate REAL, TOTAL RETURN, we have to adjust the total return formula by adding in “life expectancy.” 

RTR =((1+(Ca + D)/ 1+I)-1)^(Si-Lfe)


  • Ca = Capital Appreciation
  • D = Dividends
  • I = Inflation
  • Si = Starting Investment Age
  • Lfe = Life Expectancy

For consistency from last week’s article, we will assume the average starting investment age is 35. We will also assume the holding period for stocks is equal to the life expectancy less the starting age. The chart below shows the calculation of total life expectancy (based on the average of males and females) from 1900-present, the average starting age of 35, and the resulting years until death. I have also overlaid the rolling average of the 20-year total, real returns and valuations.

If we use the stat and end dates, as shown in the first chart and table above, and calculate real total return based on the life expectancy for each period we find the following.

The horizontal red line is critically important.

One to the most egregious investing “myths” is when investors are told:

The power of compounding is the most powerful force in investing.” 

What the red line shows you is when, ON AVERAGE, you failed to achieve 6%-annualized average total returns (much less 10%.) from the starting age of 35 until DEATH.

Importantly, notice the level of VALUATIONS when you start investing has everything to do with the achievement of higher rates of return over the investable life expectancy of an individual. 

“Yes, but there are periods where my average return was higher than either 6% or 10%. So it’s not actually a fallacy. What am I missing?”


The stock market does not COMPOUND returns. 

There is a massive difference between AVERAGE and ACTUAL returns on invested capital. The impact of losses, in any given year, destroys the annualized “compounding” effect of money.

As shown in the chart box below, I have taken a $1000 investment for each period and assumed a real, total return holding period until death. No withdrawals were ever made. (Note: the periods from 1983 forward are still running as the investable life expectancy span is 40-plus years.)

The gold sloping line is the “promise” of 6% annualized compound returns. The blue line is what actually happened with invested capital from 35 years of age until death, with the bar chart at the bottom of each period showing the surplus or shortfall of the goal of 6% annualized returns.

In every single case, at the point of death, the invested capital is short of the promised goal.

The difference between “close” to goal, and not, was the starting valuation level when investments were made.

This is why, as I discussed in “The Fatal Flaws In Your Retirement Plan,” that you must compensate for both starting period valuations and variability in returns when making future return assumptions. If you calculate your retirement plan using a 6% compounded growth rates (much less 8% or 10%) you WILL fall short of your goals. 

But wait….

It’s Actually Even Worse

The analysis above does NOT INCLUDE the effect of taxes, fees, expenses or a withdrawal rate once individuals hit retirement age.

This was the point I discussed in “Retirees May Have A Spend Down Problem.”

“The chart below takes the average return of all periods where the starting P/E was above 20x earnings (black line) and uses those returns to calculate the spend down of retiree’s in retirement assuming similar outcomes for the markets over the next 30-years. As opposed to the analysis above, I have added a 4% annual withdrawal rate at retirement and included the impact of inflation and taxation.”

“On the surface, it would appear a retiree would not have run out of money over the subsequent 30-year period. However, once the impact of inflation and taxes are included, the outcome becomes substantially worse.”

Time To Get Real

The analysis above reveals the important points that individuals should OF ANY AGE should consider:

  • Expectations for future returns and withdrawal rates should be downwardly adjusted due to current valuation levels.
  • The potential for front-loaded returns going forward is unlikely.
  • Your personal life expectancy plays a huge role in future outcomes. 
  • The impact of taxation must be considered.
  • Future inflation expectations must be carefully considered.
  • Drawdowns from portfolios during declining market environments accelerates the principal bleed. Plans should be made during up years to harbor capital for reduced portfolio withdrawals during adverse market conditions.
  • The yield chase over the last 8-years, and low interest rate environment, has created an extremely risky environment for investors. Caution is advised.
  • Expectations for compounded annual rates of returns should be dismissed in lieu of variable rates of return based on current valuation levels.

You cannot INVEST your way to your retirement goal. As the last decade should have taught you by now, the stock market is not a “get wealthy for retirement” scheme. You cannot continue under-saving for your retirement hoping the stock market will make up the difference. This is the same trap that pension funds all across this country have fallen into and are now paying the price for.

Importantly, chasing an arbitrary index that is 100% invested in the equity market requires you to take on far more risk that you most likely realize. Two massive bear markets over the last decade have left many individuals further away from retirement than they ever imagined.

As shown above, our life expectancy rates are finite and the later we get started saving for goals, the less time we have to waste trying to “get back to even” following a “mean reverting event.”

Investing for retirement, should be done conservatively, and cautiously, with the goal of outpacing inflation over time. Trying to beat some random, arbitrary index that has nothing in common with your financial goals, objectives, and most importantly, your life span, has tended to end badly for individuals.

You can do better.

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spastic_colon's picture

for me its when the millenials "start" buying what I am "ending"

JRobby's picture


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

"THEY" count on that.

8774_44887's picture
8774_44887 (not verified) JRobby Mar 13, 2017 3:38 PM

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do...

City_Of_Champyinz's picture

Most people have no idea why the retirement age was set at 65.  The answer is simple, back when SSI was born, the average age of death was 66.  It was never designed to pay people year in and year out for a decade or two.  The retirement age has never been adjusted, and that is one of the big reasons why the program is already bankrupt. 

spicedune's picture
spicedune (not verified) Mar 13, 2017 2:03 PM

Honestly you can see exactly how this is playing out city by city at it's pretty shocking

Itinerant's picture

No inflation factored in.

Nor the fact that the index is no reflection of average stock holdings, since stocks fall out of the index when they're not doing too well, and are substituted by better performing companies. Plus the index has been rebased many times.

nope-1004's picture

Exactly.  We've got a purdy chart of "growth" that has been redefined along the way MANY times.  These charts are casino lies, just like all the other BS the banksters release to make you believe you need to park your money in their instruments.  Without many players in the casino and a constant stream of new capital, it's hard to create volatility and front run every trade, either up or down.  The fuckers are pure greed and nothing else.

Fuck'em.  Then piss on 'em.

Starve the beast and stay out of the casino.

spicedune:  Does your model for grocery inflation take into consideration reduced packaging sizes too?  If the price were the same yet size reduced 10%, would that show up through GroceryBear?  Or did we just reveal that GroceryBear is a FED creation?  lol

Gilnut's picture

Long article, lots of charts, and lots of math to show what I learned long ago.  My gold, silver, and physical assets are still with me, my 401k not so much.  :)

duo's picture

An once of gold for every month I plan to be retired, plus one for my wife. QED.

OverTheHedge's picture

It's the Lord Rothschild thing: buy when there's blood in the streets. Otherwise, don't bother.

Rainman's picture

The really smart retirement planner is the guy who plans to drop dead the day before he is completely and utterly broke

JRobby's picture

Die with $32.00 in the bank, $0.00 assets, $2,000,000 in debt.

Don't we miss 2006?

assistedliving's picture

Why look back?  you're not going that way.  Demographics man. 

venturen's picture

the day of debt is coming. Ignore it all you want...but the day of zero value dollar is approaching quickly. We are gamblers on that last debt binge!

Consuelo's picture



"Therefore, in order to REALLY calculate REAL, TOTAL RETURN, we have to adjust the total return formula by adding in “life expectancy.” 

RTR =((1+(Ca + D)/ 1+I)-1)^(Si-Lfe)


  • Ca = Capital Appreciation
  • D = Dividends
  • I = Inflation
  • Si = Starting Investment Age
  • Lfe = Life Expectancy


Oh for Gawd's sake...    All of this & the kitchen sink, just to maintain those annual $$$Fees Lance...?



Skateboarder's picture

He forgot to multiply by zero.

GreatUncle's picture

You could divide by infinity, where the divisor is the total fiat in the world.

-> 0 just the same while the system persists, the multiply by zero is the instantaneous bust.

Yen Cross's picture

    Short the Nasdaq. You won't regret it.[The tech sector is way out in front of itself]    The 10year is back up over 2.600% in yield.   NOT good.

  Shorting usd/jpy after the fed.[yields will probably drop] looks interesting as well. Japanese companies are also repatriating profits this month. [buying yen]

TeethVillage88s's picture

I'm not hooked in so I'll just post for others like me.

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As a caveat, investors should note that such products are suitable only for short-term traders as these are rebalanced on a daily basis

TeethVillage88s's picture

The collapse of the Dot Com bubble took place during 1999–2001... & 911 hurt markets... and there was a Treasury Bond problem that collapsed in 2001-2002.

- wish I had a good chart to show the 1999-2002 Collapse.
- 1999-2003 period is all we have to compare with 2007-2011 collapse

I knew people that gave up on stock market investing after the dot com crisis. But I know people that held on through 1999-2017 still in the game.

- Too bad Washington DC is rigged, Wall Street is Rigged, but we still have to listen to the Lies, propaganda, and fraud coming out of their mouths!
- Congress & the Federal Reserve are filled with Kamikaze pilots
- Obviously more & MORE we see we are led by Suicidal Leadership
- If citizens are poor & in debt, they are EASIER to CONTROL
- So they never fix anything, only add to the Cost of Living, Taxes
- Mitch McConnell says 211 days till he will look at Trump Tax Plan of his 100 Days
- Obama Care Lite is an Abomination
- No talk about Glass-Steagall or Normailization of FIREs & Markets
- No Serious talk about Budget Cuts, smaller US Footprint

hooligan2009's picture

excellent work - needs to be "dumbed down" to show the path of individuals in different situations from age 35 to death at say, 85 so a 50 year plan to include a period of capital accumulation for thirty years accumulating to a final pension pot and then draw down either as an annuity aftet tax using anuity rates of 5, 6 and 8% - OVER DIFFERENT PE ENVIRNOMENTS and a demo of range of outcvomes - i prefer range of final dollar returns over concatenated ten year periods and charts to show the huge range of potential final values at retirement (just the pension pot) from cocnatenated ten year periods.

investment transactin costs, management fees, custodial fees and trustee/admin/legal expenses are non-trivial items and need to be better factored ito fial returns.

if ecpenses and t/costs are 1% per annum - your final pot is 30 years times 1% lower if you start at 35 and retire at 65

to be really "kek" you probably need to start at 40 and run to 70 (same 30 year period) of saving and just FIFTEEN YEARS in retirment (dead at 85) to highlight how much you need to regularly save to get to a pension pot of a fixed amount.

right now, it costs you around 1,000 dollars for every 1 dollar a week you want to retire on - you want 1,000 a week, you need 1 million bucks in your pension pot - 500 a week = 500,000 - BEFORE TAXES

get there when fees, t/costs, expenses take 30% of your pension pot AND THEN THE TAX MAN TAKES 20% implies somthing to get to 1 million in a pot for 50,000 a year.

Ben A Drill's picture

No mention of rebalancing the DJIA, S&P 500. The dogs must go so we always move north, (Green). Let's see the chart with no rebalancing starting from the year 1900.

Sledge-hammer's picture
Sledge-hammer (not verified) Mar 13, 2017 8:03 PM

I do not pretend to understand the esoteric world of big-time economics and finance.  Keynes vs Von Mises is Greek to me.  What I do know is that it is all a clever little made-up world (kind of like a make-believe world created for a Dungeons and Dragons game) in which (((the players))) have made the rules and in which only (((they))) get to play and manipulate the rules to their advantage in their made-up world but to our detriment.  The rest of us (commonly referred to as goyim))) are shut out of this made-up world, but we get to pay for it.  Like the W.O.P.R. computer said, "The only way to win the game is to not play."  But they are pretty charts.

firestarter_916's picture

The dirty little secret that financial planners never mention.  In order to get their published gains one must be fully invested from Dec 31 close to Dec 31 close for length of time of published results. Not one person I know has ever invested that way. Good luck getting any 6%-8% growth over 40 years.  And if you start at age 35, you'll be 75 in that red Ferrari.  Have fun with that because you look like a giant DB.