RISK LAB

Sequence Risk

Sequence risk is the danger that losses happen at the wrong time. It is especially important when money is being withdrawn, retirement is near, or the account does not have enough time to recover before cash is needed.

Meaning

What it means

Sequence risk is the risk that the order and timing of returns damage the plan, even if average returns look acceptable.

Protection

What it protects

It protects against relying on long-term averages when the user's cash flow depends on near-term account value.

Mechanics

How it works

Losses early in a withdrawal period can reduce principal, force selling at low prices, and make later recovery less effective.

Risk Signals

How it shows up

Watch for retirees, income clients, near-term goals, forced withdrawals, concentrated exposure, or users assuming average return solves timing risk.

Action

What to do

Review withdrawal needs, time horizon, volatility, liquidity, and whether safer reserves or allocation changes are needed.

Avoid

What to avoid

Do not explain only expected return. The order of returns can matter as much as the return itself.

Risk Review Frame

Read the risk before you approve the action

Use this topic to separate a normal decision from a risk decision. A risk decision needs facts, fit, limits, and documentation before it can be treated as clean.

  • When is money needed?
  • What happens after early loss?
  • Will withdrawals force selling?
  • Is there a buffer?

Topic Checklist

Before you mark this complete

  • Define the risk in plain English.
  • Identify what could go wrong for the client, account, product, or market condition.
  • Connect the risk to capacity, tolerance, time horizon, liquidity, or documentation.
  • Choose whether the situation is clean, incomplete, needs adjustment, or requires escalation.
  • Confirm the review action before moving to the next topic.

Ready Check

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