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system
should i use put extra money toward paying off my student loans or investing in an index fund?
user
yes, it's a risk. to put it in perspective, if we look at the data for s&p returns since 1871, we get a cagr of 10.72%. but, that comes with a sdev (standard deviation) of 18.67%. this results in 53 of the 146 years returning less than 4%.  now if we repeat the exercise over rolling 8 year periods, the cagr drops to 9.22%, but the sdev drops to 5.74%. this results in just 31 of the 139 periods returning less than 4%. on the flip side, 26 periods had an 8 year return of over 15% cagr.  from the anti-ds article you linked, i see that you like a good analogy. for me, the returns of the s&p over the long term are like going to vegas, and finding that after you run the math of their craps (dice rolling game) you find the expected return is 10%. you can still lose on a given roll. but over a series of a larger number of rolls, you're far ahead.  to d stanley - i agree that returns are not quite normal, but they are not so far off. of the 139 rolling returns, we'd expect about 68% or 95 results to be 1 sdev away. we get 88 returns +/-1sdev. 2 sdevs? we'd expect only 5% to lie outside this range, and in fact, i only get one result on the low side and 4 on the high side, 5 results vs the 7 total we'd expect. the results are a bit better (more profitable) than the normal bell curve fit would suggest.
assistant