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Originally Posted by JLP
Also, you say: "So if the stock market happens to be bad your first few years..." Actually, if the market has to be down, you want the down years when you first start investing, when you don't have as much capital at risk. A 20% loss on a $1,000 investment is much better than a 20% loss on a $1,000,000.
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Yes, this makes sense on the surface, but if you use the tools and it says you will make your million in 30 years at 8%, but the first 5 years you lose 2% each year, when that 30 years comes up, you won't even be close to the million dollars. From what I can tell, compound interest works better the longer you have it. So if your first years start out slow, it throws the timeline completely out the window since it is the first few years that are most important.
In your scenerio a 20% loss on $1 million is big ($200,000), but if you don't earn the 8% in the first five years, you wouldn't have even $500,000 (or a $500,000 loss) because the compounding never took effect.
So under these circumstances, I would rather have a 20% loss at the end than it at the beginning since I would end up with more.