Sequence-of-returns risk
Certified Financial Planner glossary · Certified Financial Planner
Definition
The exposure of a portfolio subject to withdrawals to the ordering, rather than merely the average, of its returns.
Sequence-of-returns risk in plain English
Two retirees earn the same average return over twenty years, but the one who suffers deep losses in the first years while withdrawing can run out of money much sooner. Sequence-of-returns risk is the exposure of a portfolio subject to withdrawals to the ordering, rather than merely the average, of its returns. Average return alone is not enough once cash flows are leaving the portfolio. Accumulation-only examples without withdrawals understate this risk.
Related Certified Financial Planner terms
Certified Financial Planner practice questions · Certified Financial Planner flashcards · Certified Financial Planner study guide