Average Returns Don’t Pay Your Bills. Sequence Does

Average returns are irrelevant.

Sequence is what determines outcomes.

Most portfolios are built on averages.

That’s flawed.

Because returns are path-dependent.

Bengen research:

→ Early drawdowns reduce sustainable withdrawals

Mechanism:

• Withdraw during losses

• Capital shrinks

• Compounding breaks

Japan post-1990 is the case study:

Long-term averages looked acceptable.

Early sequence destroyed outcomes.

Conclusion:

For anyone drawing income:

→ Timing of returns > Average returns

Question: If two portfolios have the same average return but different sequences… are they actually equal?