Sequencing Risk: The Worst Returns in their Worst Order
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With the first of the baby boomers generation now 65 years of age and having experienced a decade littered with financial shocks (dot.com bubble, sub-prime, global financial crisis, sovereign debt), the impact of sequencing risk is a clear and present danger for retirement nest-eggs. This paper takes an outcome-oriented approach to the problem to provide practical insights into how sequencing risk works and the critical dependency of retirement outcomes on sequencing risk. The analysis challenges the conventional wisdom which holds that it is the accumulated average of investment returns that matter and shows rather it is the realized sequence of returns which largely determines the sustainability of retirement incomes.
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