Investing term

What is Sequence of returns?

The order in which your returns arrive matters — big early losses hurt more than late ones.

Sequence of returns is the simple but underappreciated fact that the order in which gains and losses arrive can matter as much as their average — especially once you're withdrawing money. The same average return feels very different depending on whether the bad years come early or late. While you're still saving it matters less; near and into retirement it matters enormously.

For example

Two retirees average the same 6% over 20 years, but the one who hit a crash in year one — while withdrawing — can run out of money the other never does.

Sequence of returns is taught hands-on in Stage 2 — Why Investing Matters (And When It Doesn't).

See the lesson →

Related terms

Asset classA broad category of investment with similar behavior. Stocks, bonds, cash, real estate, commodities.Behavior gapThe difference between a fund's reported return and what its investors actually earned — usually worse.Dollar-cost averagingInvesting a fixed amount on a fixed schedule, regardless of market level.FOMO buyingFear of missing out — piling into something after it has already run, because everyone else seems to be winning.
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