Build a robust portfolio
We’ve all heard the saying – with greater risk comes the potential for greater returns. While this adage holds true for the most part, understanding different kinds of risks and how to mitigate them is more nuanced than taking a pot-luck guess at how much of it you can stomach.
Know what they are SEQUENCE OF RETURNS
Sequencing risk is when investment market volatility meets with the cash flow coming in or out of your investment portfolio (see figure). When there is no volatility, the sequence in which you receive your investment returns won’t matter. Conversely, when there is no cash flow, every dollar of your initial investment experiences every return, be it positive or negative, so again sequence won’t matter.
However, when there are cash flows, the sequence will matter as not every invested dollar will experience the return from every period – new inflows miss the earlier returns and outflows miss any subsequent returns. The sequence of returns is
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