Sequence Risk

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DEFINITION of 'Sequence Risk '

The risk of receiving lower or negative returns early in a period when withdrawals are made from the underlying investments. The order or the sequence of investment returns is a primary concern for those individuals who are retired and living off the income and capital of their investments.

BREAKING DOWN 'Sequence Risk '

It is not just long-term average returns that impact your financial wealth, but the timing of those returns. When retirees begin withdrawing money from their investments, the returns during the first few years can have a major impact on their wealth.

Two retirees with identical wealth can have entirely different financial outcomes, depending on when they start retirement. A retiree starting out at the bottom of a bear market will have better investing success in retirement than another starting out at a market peak, even if the long-term averages are the same.

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