Sequence of Returns Risk
Why retiring into a bear market can destroy your portfolio, even if average long-term returns are high.
The Core Pitfall
If you experience negative returns in the first few years of retirement while withdrawing funds, your portfolio size shrinks permanently, making it impossible to recover when the bull market returns.
Why It Happens
The order in which returns occur matters immensely during the withdrawal phase, unlike the accumulation phase.
⚠️ Key Warning
Mitigate this risk with a dynamic withdrawal strategy or a cash buffer for the first 3-5 years of retirement.
How to Protect Yourself
- Recognize the trap: Understand the mechanics before you invest.
- Risk Management: Always size positions according to maximum potential loss.
- Stay Disciplined: Stick to your long-term plan and ignore market noise.