What Are the Chances of Being Down After 5 Years?

I'm going to show you here. We've got the expected annual return of 15% based on the last 10 years. Investment horizon 5 years. Higher volatility means a wider range of possible outcomes. But because the expected return is strongly positive, the probability of a loss over 5 years remains slim. Annual volatility, probability portfolio is down after 5 years, probability portfolio is up after 5 years, unit of 100 investors after 5 years, equivalent coin toss. 10% annualized volatility, 0.04% (about 1 in 2,500), 99.96% (about 2,499 in 2,500), 99.96 from ahead, 12 heads in a row (1 in 4,096). 15% annualized volatility, 1.3% (about 1 in 77), 98.7% (about 77 in 77), 98.7 from ahead, 6 heads in a row (1 in 64). 20% annualized volatility, 4.7% (about 1 in 21), 95.3% (about 79 in 77), 95.3 from ahead, 4 heads in a row (1 in 16). 25% annualized volatility, 9.0% (about 1 in 11), 91.0% (about 70 in 77), 91.0 from ahead, 3 heads in a row (1 in 8). What does this mean? Even with higher volatility, the chance of being down after 5 years remains slim because the expected return is strongly positive. But because the expected return is strongly positive, the probability of a loss over 5 years remains slim. About the coin toss analogy: A fair coin has a 50% chance of landing heads. The chance of throwing 12 heads in a row is tiny, quickly approaching zero. The chance of throwing 3 heads in a row is 1 in 8. 1 in 4 is 1 in 16, and 3 in a row is 1 in 8. Model: Gemini Dynamo (Bionic Engineer). Calculations are approximate. S&P 500 returns explained: volatility, coin flips, and why patience pays off. See the real risk of being down over time. #Investing #Finance #StockMarket #Education #S&P500