Who Ate Joe’s Retirement

by Peter Chiappinelli and Ram Thirukkonda.

Retirement plan participants are haunted by an invisible risk called sequence risk (sometimes called sequence-of-returns or path dependency risk), that is, getting the “right” returns but in the “wrong” order.

Current models of asset allocation – the most popular being static, or predetermined, target-date glide paths – “know” that sequence risk exists, but behave as if there is nothing that can be done to mitigate it. Valuation-based dynamic allocation, on the other hand, can help soften the bite.