But what's the relevance of that? When the next bubble pops, whether it be in two weeks, two years, or a decade, you and your investments are going to experience it. Some of those red splotches go on for twenty years.
As for why doing "just barely better than inflation" is marked as red, the chart accounts for inflation, but it doesn't account for a time value of money. Putting $1 dollar in the market to get $1.04 back out 30 years later is not a positive investement.
"Yet despite that, the majority of that chart shows returns moderately above inflation, sitting in at around the 4% safe withdrawal rate."
Which is why it is generally not a terrible idea to invest in the stock market.
But this is basically a goal-post move relative to the "common wisdom", which presents it as a done-deal that the stock market is always a good investment that produces a ~7% return every year. It won't matter to you that it tends to generally produce a relatively decent return over 50 years if you are currently, unbeknownst to you, at the beginning of one of those big red areas that may stretch down for decades.
Look at the stock market as it stands today. I will not tell you 100% that we are in such an area; internet commentators have predicted one million of the past 3 recessions. But I will tell you that it's an awfully plausible story.
This is not how annual returns work. If you put a $1 an average return was 4%, you will get $3.25. And if you put it in a tax deferred account or did not withdraw a lump sum after 30 years, the effect of taxes would be less dramatic.
What other investment performed better over the long time? For instance, housing did not grow much until 30 years ago.[1]
So I'll just note a few things:
1) You can clearly see the Great Depression and 2008 in here, so I'm just going to ignore those.
2) The other really nasty period for market returns was during the 70s oil crisis and subsequent high inflation period.
It also notably marks areas "slightly above inflation" as red, which are not periods where loses would occur (though, yes, the gains would be basically flat). This strikes me as an odd choice and a misleading one that makes the historical analysis look worse than it actually is.
Yet despite that, the majority of that chart shows returns moderately above inflation, sitting in at around the 4% safe withdrawal rate.
I personally don't view this as justifying the claim that individual investors need to worry about market timing. If anything it reinforces my view that they shouldn't because no one could apriori predict the kinds of events that led to the red areas of that chart.