The Long Term Returns chart shows the changing uncertainty of compound annual growth rates over time. This demonstrates how long you may need to hold a portfolio to experience the long-term returns it advertises, and provides a visual guide to the range of investment paths you might personally travel along the way.
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The Long Term Returns chart shows the full range of inflation-adjusted CAGRs based on how long you invested. But rather than showing each individual number, it reports the range of real-life returns. The blue line shows the maximum return, the red line shows the minimum return, and the gray line shows the median return.
In addition, the shaded areas help distinguish the most common results from what might be considered outliers. The red area represents the bottom 15% of outcomes while the blue area represents the top 15% of outcomes. The gray area shows the middle 70% where the bulk of returns occurred. While math-savvy investors may recognize that as similar to one standard deviation, the calculations are not based on standard deviations at all and accurately filter the top and bottom 15% from each investing timeframe.
To help study a specific investing timeframe try changing the number in the black box. That will move the vertical cross-section and adjust the Real CAGR numbers accordingly.
The baseline return is the 15th percentile return that marks the border between the red and gray areas on the chart. I personally use this number for my own financial planning as a conservative return excluding the worst outliers.
This is the return for the “typical” historical investor. Half of investors received a higher return and half received a lower return.
The stretch return is the 85th percentile return that marks the border between the gray and blue areas on the chart. While the odds are against you personally earning that return, optimistic investors may find it helpful for setting a realistic upper bound on their projections.
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