# Sequence risk: why the order of returns matters

> Replay the same four real years in two orders while drawing cash each year, and see why a bad year early costs more. Real dated benchmark data.

Data as of Nov 10, 2026. Rebuilt every trading night.

## Sequence risk: why the order of returns matters

Data as of Nov 10, 2026. Rebuilt every trading night.

Over the four calendar years to Dec 31, 2025, drawing $20,000 a year from a $500,000 60% stock mix left $518,485 , or $539,240 reversed, hypothetically.

Planning Deep Dive · Lesson 1 of 6 1 2 3 4 5 6

Set a balance. See what each calendar year did to it, before any draw. Starting balance $500,000 On $500,000: 2022 −$79,148, 2023 $76,621, 2024 $51,293, 2025 $80,942. Hypothetical balance. ETFIQ Strategic 60% stocks, calendar-year returns; before Oct 5, 2026 the rule is applied to past prices. Step 1. No draws. Multiply $500,000 by each year's growth factor: $500,000 × 0.8417 × 1.1532 × 1.1026 × 1.1619 = $621,763 . Multiplication ignores order, so with no draws order doesn't matter . Dollar results use each year's unrounded return, so multiplying the rounded factors shown can differ by a few dollars. Step 2. Draw $20,000 at the start of each year, real order (bad year first): Step 3. Same draw, same four returns, reversed (bad year last): Step 4. Compare. Same returns, same $80,000 drawn, yet the reversed order ends $20,755 higher . In real order, the draws came out of a pile the 2022 loss had just shrunk. Reversed, three good years built a cushion first.

### The question

"If two retirees earn exactly the same returns over the same years, how can one end up with more money?"

### The idea

- Sequence risk is the risk that bad years come at the wrong time. While you are only saving or holding, the order of returns doesn't change where you end. Once you draw money each year, it does.

- Money taken out before a bad year never gets to recover, and an early loss shrinks the pile every later good year grows. Retirement withdrawals walked through 2022 to 2025 in order. Here we flip the order to test it.

### Worked example

The 4 steps beside the drawing at the top work this through on ETFIQ data. Point at a step to light the part of the drawing it describes.

We'll use ETFIQ Strategic, 60% stocks , the benchmark from that lesson. Its years before Oct 5, 2026 are hypothetical (its rule applied to past prices). Every return is from its calendar-year table, prices to Nov 10, 2026 .

The four years: −15.83% , +15.32% , +10.26% , +16.19% (2022 to 2025).

| Year | Return | Year-end balance |
| --- | --- | --- |
| 2022 | −15.83% | $404,018 |
| 2023 | +15.32% | $442,865 |
| 2024 | +10.26% | $466,245 |
| 2025 | +16.19% | $518,485 |

| Year | Return | Year-end balance |
| --- | --- | --- |
| 2025 | +16.19% | $557,705 |
| 2024 | +10.26% | $592,866 |
| 2023 | +15.32% | $660,653 |
| 2022 | −15.83% | $539,240 |

First line worked out: ($500,000 − $20,000) × 1.1619 = $557,705 .

Longer runs and larger draws widen the gap. Over the 15 years from 2011 to 2025, with a $30,000 draw, the real order ends at $539,431 and the reversed order at $620,273 .

### The common mistake

"My average return is what matters." Both paths share the same four returns, so the same average, yet they ended $20,755 apart. Once money comes out, the average hides the order. Test a draw against real runs of years , not one average rate.

### Check your understanding

Pick an answer to see why. Two of three right passes the lesson.

1. You hold $200,000 for 10 years, adding and drawing nothing. Does the order of yearly returns change your ending balance? A No, the same returns in any order end at the same amount B Yes, bad years first always ends lower C Yes, good years first always ends lower D Only if a year is negative Answer: A. No, the same returns in any order end at the same amount. with no money moving, the ending balance is the start times each year's growth factor, and multiplication ignores order. Not B: that's true only once you draw money each year. 2. Two retirees draw the same dollars each year and earn the same set of returns. Who likely ends with more? A The one whose bad years come first B They always end level C Whoever has the higher average D The one whose bad years come last Answer: D. The one whose bad years come last. early good years grow the pile before losses arrive. Not C: their averages are the same; only the order differs. 3. Sam plans to draw 6% a year. Which test best shows Sam's sequence risk? A The mix's average yearly return B The mix's best calendar year C Replaying the draw through real runs of years, including ones that start with a loss D The mix's fee Answer: C. Replaying the draw through real runs of years, including ones that start with a loss. sequence risk is about order, so you have to replay orders, especially bad starts. Not A: an average hides when the losses came.

### Takeaways

- While you draw money, the order of returns changes where you end. While you only hold, it doesn't.

- A bad year near the start of withdrawals costs the most.

- Test a draw against real runs of years on ETFIQ's benchmarks, not against one average rate.

### Do it on ETFIQ

Replay your mix through real years

### Where to next

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Source: ETFIQ, independent ETF data. Recomputed nightly from public filings and prices.
Cite: ETFIQ, Sequence risk: why the order of returns matters, data as of Nov 10, 2026. https://etfiq.com/academy/planning-deep-dive/sequence-risk/
Licence: https://etfiq.com/license/ Data ETFIQ computes is free to use with attribution: ETFIQ (etfiq.com). Issuer data stays under its owner's terms.
HTML: https://etfiq.com/academy/planning-deep-dive/sequence-risk/