[DcifrThs]

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another way to look at it is to imagine a monte carlo simulation where you run the "lumpy" investment 100 times for 20 years vs. the "flat" investment 100 times. ni the lumpy scenario, there are instances (maybe 5% or something) where the last year is a -10% or -20% year that wipes out a large amount of the previous 20 years of gains. the flat scenario would almost never have that huge loss, but wouldn't have those huge gains also.

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it baffles me every time i hear people who are actually educated in these matters say something like this.

who cares if you drop 20% in the last year? you could also drop 20% in the first year, wiping out 20% of your gains for the next 19 years.

guess what? multiplication is commutative!

consider this example:

what is 0.8 * 1.15^19?
how about 1.15^19 * 0.8?

and if you suddenly become risk averse in your last year, you can always invest in something else.

also, i don't see why you're throwing around jargon like "monte carlo simulation", which half the readers here won't understand, when you could easily get your point across using simple explanations.

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the point is as was described in the above posts: that last .8 hurts more than the first since you do become more risk averse as time goes on (or so studies on that matter show). a simple example: think about how you plan for your retirement in the .8*1.15^19 scenario. is your retirement plan suddenly in jeopardy? not really since you can expect a 20% down year and you knew that when you went for the 15% return.

but what about the 1.15^19*.8...now it does have a very large impact since you've planned for presumably some # of years greater than 1 on that retirement income and BOOM all of a sudden you have a big loss in the last year that you didn't plan on.

so sure, mathematically they are the same. but in terms of investing and living, they are not.

anyways, the whole point of this thread is imo to consider risk when investing in things that look attractive from an absolute return standpoint.

i even said in the very next paragraph that it was a thought exercise and doesn't prove anything useful. the bulk of my post dealt with the important stuff in this thread.

Barron