Ok, not the best title but let’s run with it. Let’s start with a question:
You have a choice between two investments of $100,000:
- Investment #1: Earns a consistent 8% return every year (put aside the fact that an investment like this doesn’t exist at the current time; it’s been a while since you could buy a 30 year Treasury Bond with that kind of return).
- Investment #2: Has an average return of 8% per year but has “lumpier returns” aka it has more volatile returns but the returns each year are in the top 10% of fund returns. Some years it is up, some years it is down, but overall it averages the same 8% return as Investment #1.
Which investment has a higher balance at the end of the 20 year period?