I believe they’re just graphing the current (as of 2010) value of the portfolio for hypothetical investors at each of the different target retirement years. So moving to the right along the horizontal axis from 2010 does not mean moving forward in time, It means moving to younger and younger cohorts.
The data point at 2010 is the value, in 2010, of the portfolio of someone retiring in 2010. The value at 2011 is the value, in 2010, of the portfolio of someone who will retire in 2011… And the value at 2054 is the value, in 2010, of the portfolio of someone who will retire in 2054. (That is, it’s the value of the portfolio of someone who’s just starting out on their assumed 44 year career. The number isn’t 0 because they’re taking into account the present value of future income.)
So the reason all the numbers converge as you go to the right is that you’re looking at the values of (hypothetical) young people’s portfolios, and they’ve only been following the strategy for a couple of years, so the performance of the different strategies hasn’t had a chance to diverge yet.
Here’s the relevant passage from the book:
Figure 3.5 also includes results of how investors who will retire in the future are currently doing with the various investment plans (and taking into account the present value of their future savings contributions).
...
The dominance of our preferred rule even extends to people who have a long time to go before retirement. Indeed, in Figure 3.5, you can see that the leveraged strategy dominates the traditional strategies for any investor who has had the chance to invest for at least twenty years.
I believe they’re just graphing the current (as of 2010) value of the portfolio for hypothetical investors at each of the different target retirement years. So moving to the right along the horizontal axis from 2010 does not mean moving forward in time, It means moving to younger and younger cohorts.
The data point at 2010 is the value, in 2010, of the portfolio of someone retiring in 2010. The value at 2011 is the value, in 2010, of the portfolio of someone who will retire in 2011… And the value at 2054 is the value, in 2010, of the portfolio of someone who will retire in 2054. (That is, it’s the value of the portfolio of someone who’s just starting out on their assumed 44 year career. The number isn’t 0 because they’re taking into account the present value of future income.)
So the reason all the numbers converge as you go to the right is that you’re looking at the values of (hypothetical) young people’s portfolios, and they’ve only been following the strategy for a couple of years, so the performance of the different strategies hasn’t had a chance to diverge yet.
Here’s the relevant passage from the book:
Thanks. Convergence makes perfect sense now.