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Sequence of returns risk

The risk that the same average return produces a different outcome depending on the order of good and bad years. It appears wherever money is added or withdrawn regularly.

How to read the number

A portfolio nobody touches is indifferent to order: a product of factors does not change when they are rearranged. Add contributions or withdrawals and the order starts to decide the result.

When the metric lies

Also known as: sequence risk

Related terms