Investing · General financial education

Sequence of returns risk

The same average return in a different order can lead to different wealth, if you withdraw money along the way.

In more detail

With no cashflows, the order of the same yearly returns often does not change the ending amount, because they multiply. Once you withdraw, early losses hit a larger pot. Later losses hit an already smaller pot. That is mechanics, not a withdrawal rule.

Background

Near retirement or planned withdrawals, order weighs more than in a long saving phase with no withdrawals. A model with fixed withdrawals isolates the effect; it is not a forecast and not a “safe withdrawal rate”. Finmon does not compute a withdrawal path as advice.

An example

Model, €10,000 starting wealth, €1,000 withdrawn at the end of each of the two years. Path A: −20%, then +25% → €7,750. Path B: +25%, then −20% → €8,200. The same two returns, different ending wealth. With no withdrawal both would be €10,000. Not a forecast.

A common misconception

If the average is right, the path does not matter.

With withdrawals, early losses hit a larger pot. The same average can yield different ending wealth.

Source: Investor.gov · Introduction to investing. Last reviewed: 2026-11-09. Editorially reviewed on 2026-11-09. Next review 2027-11-09. Version 0.2.0. Finmon explains. It does not advise. Not investment, tax or legal advice.