Sequence of Return Risk

<p><br></p><p><strong>Josh Tirado: </strong>[00:00:20] Welcome to the making smart decisions podcast. I'm your host, Josh Tirado, and today we're going to discuss sequence risk or sequence of return risk or something that sounds really boring and dumb and not useful to you. But in reality, it is actually a major major risk to your retirement and your investments.</p><p>[00:01:26]That's what we're gonna jump into today. So let me give you the definition of what sequence risk is. According to Investopedia, sequence risk is the danger that the timing of withdrawals from your retirement account will have a negative impact on the overall rate of return available to the investor.</p><p>[00:01:40] Let me boil that down for you. Timing is everything. When you pull your money out of your retirement accounts can affect how much it is their long-term. Now that makes sense to me, but in reality, it's just math. Okay. It's math. It's boring, but it can really affect you. Obviously, the stock market and your investments, whether it's stocks, bonds, real estate, what have you? It does not go up in a straight line. It can go up and go down. It can go sideways, different things. You can have several bad years in a row followed by several good.</p><p>[00:02:11] You have several good years followed by several bad. You can have interspersed and in differing magnitudes. Whenever you hear people talk about the market, you often hear, Oh, over any 10 year period, the market has returned X or Oh. Since people start investing in the market, it has averaged this sort of return and gone up.</p><p>[00:02:28] Yeah. That's an average. That is not what you're getting every year. It can be more. It can be less. I'm amazed that people jump in, and they're like, after so many years, Hey, the market's supposed to average this. I don't have that. I have this. It could be more, it could be less, but that's based on timing. And that's based on the sequence of returns within the investment.</p><p>[00:02:47]Now that gets magnified. When you go