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Sequence

title: The Sequence of Returns description: [AFW S.2.10] Investment Principle #10 published: true date: 2026-06-30T08:10:19.438Z tags: editor: markdown dateCreated: 2021-08-28T01:42:55.176Z

Watch Sequence of Returns (2022-04) VIDEO

Watch average vs consistent ROR - sequence of returns VIDEO

There is a tremendous difference between consistent returns and average returns. Honolulu and Death Valley both have an average of 71 degrees temperature per year - but they get there very differently. One is consistent, the other is not.

The underlying principle is called the sequence of returns.

  • During the accumulation phase average returns are important, and the sequence of returns are not critically important.
  • During withdrawal phase the sequence of returns are very important.

For example, if your client invests a lump sum, and begins withdrawals immediately then it matters very much what the near-term ROR's are. It is irrelevant that he may get 8% average over 10 or 20 years. If, in the near-term, (such as 2007, 2008, 2009) he has low returns, and he is withdrawing, he will run out of money more quickly than if he were getting 8% ROR on a consistent basis.