#Finterms: Sequence of Returns Risk

What is it?
Sequence of returns risk is the risk that the timing of investment gains and losses—particularly when money is being withdrawn—can affect how long a portfolio lasts.

Why is it important?
While long-term average returns often guide financial planning, the order in which those returns occur can have a meaningful impact. Periods of early market decline paired with withdrawals can permanently reduce a portfolio’s ability to recover, even if markets improve later.

How does it show up in real life?
Two investors may experience the same average return over time—but if one encounters negative returns early while drawing income, their portfolio may be depleted more quickly. The difference lies not in performance, but in timing.

Who should be thinking about this?

• Individuals approaching or in retirement and taking withdrawals
• Business owners reinvesting proceeds after a liquidity event
• Anyone transitioning from accumulation to distribution

Planning considerations:

• Maintaining sufficient liquidity to avoid selling investments during downturns
• Structuring withdrawal strategies with flexibility
• Diversifying across asset classes to help manage volatility
• Aligning investment strategy with time horizon and income needs

Bottom line:
Investment success isn’t just about how markets perform—it’s also about when those returns occur. Thoughtful planning can help mitigate the impact of sequencing and support long-term financial stability.