Sequence risk, or sequence of returns risk, is concerned with how the order in which your investment payouts occur.
It affects retirees when they periodically add or withdraw money from their investments.
It can mean that an investor earns a much lower internal rate of return than what was expected.
“The order in which you earn your returns determines how much money you end up with,” said Charlie Jewett, Renovating Retirement.
“You can average 7-8% but depending on how that average is delivered could actually mean that you end up with less money than you started with.”
By using well thought out and researched income accounts, investors can protect their income stream from the downside while maximizing gains.