When it comes to saving for retirement, you face several risks—market fluctuations, rising living costs, risk of outliving your savings, etc. However, most investors often overlook sequence risk. It refers to the potential danger of experiencing negative investment returns early in retirement. Such negative returns, combined with periodic withdrawals, lowers the amount of capital available to grow during good market conditions. This can significantly affect the longevity of your retirement portfolio. If you are not adding or withdrawing from your portfolio, then the sequence in which the returns occur does not have any impact on the final portfolio value. However, after retirement, we have to withdraw from our portfolio every month. In that case, the sequence of returns does impact your portfolio.
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