When you retire, market whims shouldn’t determine if you make it or not. Our case study highlights what is known as sequence of returns risk, showing the power of diversification in reducing such risks.


Both have $1,000,000 and want to draw $45,000 in each year of their retirement, adjusted for inflation with a 4.5% withdrawal rate.

The S&P investor and the diversified investor

One investor places his assets in the S&P 500. The other diversifies.

Here's how they fared

The S&P investor experienced a great run, ending with $3,538,000. His ending draw of $60,000 represented 1.7% of his portfolio. He was in great shape. The diversified investor ended his run with $1,291,000, and his ending draw represented 4.7% of his portfolio. He was in fine shape, just not as well off as his counterpart.

They begin Jan 1, 1990

Unbeknownst to the investors, they embarked on their journey during a fantastic decade for U.S. stocks.


Both investors shared their story with their younger friends, detailing their first decade as retirees.

They begin Jan. 1, 2000

Unbeknownst to the investors, they embarked on their journey during a terrible decade for U.S. stocks.

The friends followed suit

Their friends retired making similar investing choices, each beginning with the same amount and draw.

Here's how their friends fared


In both scenarios the diversified investors ended with $1.3M portfolios even though they retired during very different periods.

The S&P 500 investor experienced a poor run, ending with $369,000. His ending draw of $58,000 represented a daunting 15.6% of his portfolio. He was in very bad shape. The diversified investor ended his run with $1,334,000, and his ending draw represented 4.3% of his portfolio. He was in fine shape.

Risk is defined as standard deviation for the purposes of this letter. *Diversified portfolio is defined as equally split between U.S. stocks, international stocks, U.S. bonds, international bonds, real estate, gold and commodities, rebalanced annually and excluding fees, taxes, or other costs. This is not a template for how we manage money, but it is a template for how we show the benefits of diversification. The views expressed are the views of Randy Kurtz as of the date on this document and are subject to change at any time based on market and other conditions. This is not an offer or solicitation for the purchase or sale of any security and should not be construed as such. Past performance is not indicative of future performance. Individual results will vary, sometimes substantially, from any results discussed here. Any information, statement or opinion set forth herein is general in nature, is not directed to or based on the financial situation or needs of any particular investor, and does not constitute, and should not be construed as, investment advice, a forecast of future events, a guarantee of future results, or a recommendation with respect to any particular security or investment strategy. Any returns presented do not include the effect of fees of any kind or taxes.

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