Two investors may enjoy the same average return on their investments, but could still experience divergent outcomes based on the sequence in which returns arrive. Historical simulations based on overlapping periods reveal how sequence of returns can create differing outcomes for otherwise identical investors. The only unknowns Adam faces with regard to his retirement planning is what his specific sequence of market returns will be. Adam saves for retirement during the final thirty years of work, and he earns a constant real income in each of these years. The wealth accumulation achieved at retirement is defined as a multiple of Adam’s constant real salary.

Source: Forbes April 06, 2017 13:41 UTC