Sequence of Returns Matters

Sequence of Returns Matters.

Investment returns are variable and unpredictable. The order of returns has an impact on how long a portfolio will last if the portfolio is in the distribution stage and if a fixed amount is being withdrawn from the portfolio. Negative returns in the first few years of retirement can significantly add to the possibility of portfolio ruin.

Article further explores.  

The situation:
If the client had retired and the sequence of returns correlated with Scenario A, after a 10 year timeframe he would have had an ending balance of $506,951.

But what if we compare that with Scenario B where the sequence of returns was reversed. He would have an ending balance of $406,597. that is a difference of -$100,054!

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