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What’s the Sequence Kenneth?
Ok, the title might be an obscure reference but, hey, you won’t just learn about finance here. If you remember (for those of us older), or heard of the band (for my younger readers), REM, then you might be familiar with the song, “What’s The Frequency Kenneth.” But it’s more than a song title. Michael Stipe got that line from a physical attack on then CBS News anchor Dan Rather who was approached by two men who asked, “What’s the frequency Kenneth?” and then punched Rather in the face.
Ok, enough of a “history” lesson. Instead of frequency I’m concerned with sequence, specifically sequence of return risk. What’s that? It’s the danger that soon after retiring, stocks will go down severely enough to risk your ability to sustain yourself throughout retirement. In other words, if stocks go down too much, soon after retiring, you might run out of money. Knowing and reacting to the sequence is important.
There are ways to minimize the risk. What I’m going to do with this article is tell you about my actual sequence of returns since my retirement two and a half years ago. It’s not much of a track record but it’s a start. We’ll also look at someone who had the same amount of money as me when they retired, but had the unfortunate timing of stopping work when the dot com bubble burst in 2000.
