Sequence-of-returns risk
The same average return can produce very different outcomes depending on when the bad years happen. While accumulating, order doesn't matter, you average in. While withdrawing, a crash in the first decade is catastrophic: you sell shares cheaply for living costs, and there are fewer shares left to recover when markets bounce. It is the main reason the 4% rule fails in some historical scenarios.
Two retirees with identical 30-year average returns can end with €0 or €2M depending on whether the bad decade comes first or last.
Trade-offs
Risk
The chance that an investment loses value, and how much it could lose.
Read →Volatility
How wildly an investment's price moves up and down. High volatility = bigger swings.
Read →Diversification
Spreading money across many different things so no single one can sink you.
Read →Bull & bear market
Long stretches of rising prices (bull) or falling prices (bear). Both end, eventually.
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