Timing, and the Sequence of Returns Risk is real.
What is it?
When taking withdrawals from an investment account, the sequence of returns have real impacts to the long-term value of an investment portfolio.
Meaning, when a newly retired person starts taking money out of their account to fund their retirement, the long-term impact of their portfolio is affected as to when the returns are achieved. When you take the money out and when you achieve those returns matter.
Conversely, the sequence of returns is NOT impacted when there are NO withdrawals taken from the account. For example, the math works the same if you get a 15% return, then a 5%, and then finally a -10% return. This return sequence is equal to getting a -10% return, a 5% return and then a 15% return.
The years just before and just after retirement are critical to portfolio management.
-Paul R. Rossi, CFA