Do you have 1 million saved for retirement? May not be enough.

[FreeJoe]

318. OK, now I understand your point. I think.

OK, I think I am starting to understand what you are saying. Let me restate it and see if I'm following correctly. You can't just look at the average return for each year and apply it to a series of years and expect with higher and lower returns and expect to get that average return because the down years take away more than the up years give back.

For example, if I say that I'm getting an average return of 8% each year, but what has really happened is that I lost 8% one year and gained 24% the next (the average of -8 and 24 being 8), I haven't done as well as I would have if I had just gained 8% in year one and 8% in year two. In the first scenario, I would start with $100, be down to $92 after year one, and be up to $114.08 after year two. In the second scenario, I would start with the same $100, be up to $108 after year one, and be up to $116.64 after year two.

That is a good point and well worth people understanding. It still shouldn't dissuade people with long investment horizons from investing in the stock market, but they should be aware that the long term growth of an investment with high price volatility will be much lower than just applying the average annual return to that investment.