The risk that only exists when money is moving

The same set of returns in a different order is harmless in one phase of life and damaging in another. Nothing about the investments changes.

The mechanism

With no contributions or withdrawals, order is irrelevant. The same returns in any sequence produce the same ending value.

Add withdrawals and that stops being true. A loss early removes capital that is simultaneously being spent, and the reduced balance has less left to recover with.

Where it concentrates

The years immediately before and after drawdown begins. The balance is at its largest and the ability to compensate — work longer, save more, wait — is at its smallest.

That window is the whole problem.

It is a capacity question

This is why capacity and tolerance have to be separated. A retiree's comfort with volatility does not alter the arithmetic of withdrawing from a reduced balance.

A client can be entirely relaxed about a decline that is quietly damaging their plan.

In accumulation, a decline is an opportunity. In drawdown, the same decline is permanent. Nothing about the portfolio changed.

What is done about it

Holding near-term withdrawals in cash or short-duration assets so that spending does not force selling into a decline. Varying spending with portfolio value. Adjusting allocation through the transition years.

The honest limits

Each has a cost. Cash reserves drag in most environments. Variable spending requires a client willing to actually vary it. Adjusting allocation trades one exposure for another.

None is a solution, and describing any of them as one overstates what is available.

What it changes about the conversation

The client approaching drawdown needs a different discussion from the one they have had for twenty years, and it needs to start before the date rather than at it.