5% is decent? The index made about 10% on average, Peter Lynch about 30%, and Buffett in the ‘60s was at 40-50%.

5% return is a pretty common estimate for passive investing. I certainly didn't come up with it, smarter people than me did and spread it all over financial news media.

Maybe it’s inflation-adjusted?

If timing the market works at a small scale, why stop?

If it worked, wouldn't everyone do it?

Your risk tolerance changes. If you are living on $4000/month and have $500 to invest, you may as well bet those $500 on black. If you have a sizable investment that you hope will pay for your retirement you might want to go for the solid 10% yoy. Similarly if you manage other people's money they might be unhappy with you making 50/50 bets with that money.

It's the same logic that causes people to buy lottery tickets. Winning big in the lottery is unlikely, but getting rich by saving two lottery tickets worth of money each month is impossible. The risky strategy with the worse expected outcome is the only one that leads to your goal.

Time scale yeah. I may do a bond tent when I get closer to retiring. But given the same amount of time and different amounts of money, if my cost of living is covered either way, why use a different strategy?

It does work at small scale and people don't stop, make careers and billions out of it, see high frequency trading. You can play market timer yourself just by using some game theory and keeping up with the chart.

I don't feel like competing with hft though lol