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The secret about sequence of returns

The secret about sequence of returns

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New research conducted by Nedgroup Investments has debunked the idea of sequencing of return risk, and traditional methods to mitigate it. Instead, it is more important to find practical ways to help retired investors withstand the urge to disinvest or make emotionally driven changes to their investments during volatility, particularly if this occurs in the early years of retirement. 

Tracy Jensen, Senior Investment Analyst at Nedgroup Investments has spent most of this year investigating the effects of sequence of returns by analysing the outcomes after 10 years of retirement across hundreds of scenarios and various portfolios. What she found in practice was that the order of returns is less important than the overall returns earned by a retiree. Furthermore, the traditional methods of reducing sequence of returns risk (for example, reducing exposure to growth assets and a number of the bucketing approaches) can actually lead to worse investment outcomes for retirees.

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