Little talked about, but this idea has major implications for retirees.
Two portfolios with the same overall returns will, not surprisingly, end up at the exact same point despite the sequence of their returns being different. Meaning, it doesn’t matter in which order the returns happen as long as the returns are the same overall.
However, portfolios with fixed withdrawal rates end a 30-year period at vastly different points based on when market drawdowns occur.
When taking distributions, timing matters.
A sound financial plan and asset allocation when approaching and entering retirement can help to mitigate what’s called “Sequence of Returns Risk.”
-Paul R. Rossi, CFA