Episode Details

Did you know there’s a secret hiding in plain sight that average rates of return will never tell you? In this episode, we’ll discuss the Sequence of Returns and the risk they pose to your future income. Then, we’ll show you exactly how to minimize the risk. We’ll also look at how to mitigate sequence of returns risk in a simple, practical way so you aren’t relying on luck or timing to secure long-term income. https://www.youtube.com/watch?v=cq72TYq1zK4 So if you want to get predictable income from an unpredictable investment portfolio, NOT run out of money, and see exactly why you should supplement your investments with non-correlated assets … all so you can plan ahead and not be stressed with figuring out retirement income when it’s too late, tune in now! To understand the giant risk posed by the sequence of returns, let's lay a quick foundation. Table of contentsWhere Does Investing Fit in the Cash Flow System?The Lie in Average Rates of ReturnThe Order of Returns MattersTaking Income After Losses Is A Giant MistakeWhy Sequence of Returns is a RiskMarket Volatility and TimingBehavioral FactorsNon-Correlated Assets to the Rescue!What Spending Strategy Could Eliminate Sequence of Return Risk?So Here's How to Minimize Sequence of Return RiskGet Whole Life Insurance TodayFAQsWhat is the sequence of returns, and why does it matter?Why is taking income during down years such a problem?What spending strategy could eliminate the sequence of returns risk?How do you know when to switch between different income sources?What’s the simplest way to understand how to mitigate the sequence of returns risk? Where Does Investing Fit in the Cash Flow System? Investing is just one step in the path to time and money freedom. That’s why we have created the 3-step Business Owner’s Cash Flow System.  It’s your roadmap to take you from just surviving to a life of significance, purpose, and financial freedom. The first step is keeping more of the money you make by fixing money leaks, becoming more efficient, and profitable.  Then, you’ll protect your money with insurance and legal protection, and Privatized Banking. Finally, you’ll put your money to work, increasing your income with cash-flowing assets. The Lie in Average Rates of Return Investment performance is often measured by the average rate of return. What is an average? It's simply all the returns over a period, divided by the number of years. But the average rate of return often doesn't even come close to mapping onto our actual experience. In fact, positive averages don't even mean you'll come out ahead on the money you put in. Why? In this article, I highlight the disparity between the average vs. real rate of return. Here's the main reason that averages don't even come close to telling the whole story: Negatives have a much greater impact on your account balance than corresponding positive returns. This is one of the key reasons the sequence of returns matters so much, because the timing of losses heavily influences your real experience—even when the averages look good. For instance, if you lose 20% on $100K, you would have $80K. To recover your loss, you wouldn't just need a 20% gain. That would only get you to $96K. It would take a 25% gain, a value greater than the percentage of loss, to bring your balance back to $100K. With that out of the way, there's another deception that lies in average returns. Negative 20%, plus a positive 25% lands you at a total return of 5%. Divide that by 2 years, and you get an average of 2.5% return per year. But your experience gave you a 0% actual return over those two years. So, saying you had a 2.5% average return gives a misleading impression that you're increasing your account balance with growth. But it gets worse. The Order of Returns Matters Not only do losses make a huge impact on account value, but so does their timing. That's because early losses shrink your portfolio and make it very difficult to recover. Late losses don't do a