Revolutionize Your Financial Journey

As President and Wealth Advisor at TvH Financial, one of my key responsibilities is to ensure that the retirement plans we design for our clients are built on a solid foundation—one that maximizes the potential for financial stability and longevity. At the heart of this foundation is a concept that, unfortunately, many financial advisors overlook sequence of return risk.

Sequence of return risk refers to the order in which your investment returns occur, particularly in the critical years surrounding your retirement. While average returns over time are important, the specific sequence in which you experience gains and losses can have a significant impact on the longevity of your portfolio.

For example, if a retiree experiences significant market downturns in the early years of retirement, their portfolio might be substantially depleted just as they start withdrawing funds. Even if the market recovers later, the damage may already be done. Contrast that with a retiree who faces a strong market early in retirement—this individual is likely to be in a far better position, even if a downturn happens later.

Many advisors focus solely on average returns, assuming that long-term growth will compensate for short-term fluctuations. While this may work in the accumulation phase of investing, it is a dangerous oversimplification when building a retirement plan.

When you're in retirement, you're withdrawing from your portfolio regularly. This means that if your portfolio suffers losses early on, you'll have to sell assets at a lower value, depleting your savings faster than anticipated. Over time, this can lead to a situation where your retirement fund doesn’t last as long as it should, even if overall market performance improves.

Sequence of return risk makes it clear that volatility, especially in the early years of retirement, can erode wealth much faster than most people realize.

At TvH Financial, we address sequence of return risk head-on by incorporating several key strategies into our retirement plans:

1. Diversification: We ensure that portfolios are diversified across various asset classes, reducing exposure to any single market downturn.
2. Safe Withdrawal Rates: By customizing withdrawal strategies based on a client’s unique financial situation, we help ensure they’re not taking too much too soon.
3. Bucket Strategies: We often divide assets into different “buckets” based on when they’ll be needed, keeping short-term funds in safer, less volatile investments, while allowing longer-term funds to grow in more aggressive assets.
4. Ongoing Adjustments: Retirement plans are not static. As markets change, we continually reassess our clients’ portfolios to ensure they remain aligned with their goals and risk tolerance.

Shockingly, most advisors still neglect this crucial aspect of retirement planning. They set up retirement portfolios based on average market performance, assuming that past performance will carry their clients through. This approach is not just outdated, but it can also be devastating for retirees when the market doesn’t perform as expected.

At TvH Financial, we believe it’s not just about hitting an average return—it’s about making sure the journey to retirement, and the years that follow, are as smooth and predictable as possible.

Retirement is about enjoying the fruits of your labor, not worrying whether your portfolio will last. That’s why every plan we create at TvH Financial is designed to minimize sequence of return risk. We want our clients to feel confident, knowing their wealth is protected against one of the biggest, yet often overlooked, risks in retirement planning.

If your current retirement plan doesn't account for sequence of return risk, it might be time for a second opinion. We’d love to help you build a plan that gives you the financial security and peace of mind you deserve.

Jim Lao is the President and Wealth Advisor at TvH Financial. He specializes in creating customized financial strategies that ensure clients achieve their retirement goals while managing risk effectively.