Do you know that the order in which your investment returns occur can impact your retirement ‘nest egg’ long term outcome? It’s called sequencing risk or sequence of returns risk.

The following video demonstrates the possible impact of sequencing risk and sequence of returns.

A video transcript is provided further below, if you would prefer to read about it.

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Understanding The Impact of Sequencing Risk and Sequence of Returns – Video Transcript

If you have money invested in a portfolio you may think the order of the returns you get will make no difference to your long-term outcome.

This is true if you invest a one-off sum and don’t make any withdrawals or additions to the sum invested.

However, if you do take withdrawals, for example to help with income in retirement, the order of returns could be even more important than the level of returns.

We can show this with some simple examples.

Here is the return you get from investing £100,000, where you add nothing and take no withdrawals.

You will see whatever order the returns occur year by year, you end up in the same place.

sequencing risk - no withdrawals

But now look at this, if you withdraw 5% per year each year from the portfolio.

sequencing risk - 6% returns

If you run this over 30 years, assuming each 5 year period repeats the exact same pattern, even though the average return per year is identical, your outcome is very different.

When you invest and take withdrawals you should be aware of the risk posed by sequence of returns and this needs to be factored into your planning.

At TT Wealth we’re here to help you assess this risk.

To speak to an IFA about sequencing risk and sequence of returns, contact Tony Thomas on 07585 592494 or tony@ttwealth.co.uk

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