What is a mountain chart?
A mountain chart is a financial chart or graph with peaks and dips, which makes it look like the side of a mountain. They typically show the growth of an investment over time. They are a common way to showcase a fund's past performance and/or predicted future success.
Where have you heard about mountain charts?
You may have seen a mountain chart if you've read a fund prospectus or report.
What you need to know about mountain charts...
Mountain charts are essentially the same as line charts but with the space below the line filled in with colour. They can be a useful way to grasp a lot of information over a long period quickly. But they should be viewed carefully as they can give an optical illusion of greater growth than the reality.
For example, if the graph is plotted with currency, such as the pound, rather than a percentage, it will look like it has a steeper angle of growth than it really does. This is because of compound interest, which is a strong benefit to any long-term investor. Compound interest is essentially interest on top of interest, which, although looks impressive, isn't an indicator of performance.
Like all historical data for any fund, mountain charts will only give you information on past performance, which is no indicator of future success.