Most of my clients (when they first come to me), think:
“If my portfolio is down when I first start investing then I’ll have to get even bigger returns in the future to make up for it.”
They fear that WHEN you get negative or positive returns matters.
Let’s find out if that’s true.
Both Portfolio A and B have the same returns. One year is up 20%. One year is down 10%.
Portfolio A is down, then up.
Portfolio B up, then down.
Which one do you think is worth more at the end of Year 2?
[cue Jeopardy music]
Survey says … they are equal!
Yep: when you get good or bad returns makes no difference. Here’s the math to prove it.
As you can see, whether you have negative returns in the beginning or the end, you end up with the same final investment return.
The sequence of returns only matters if you’re withdrawing from your portfolio (like in retirement). More on that next week.