Definition
Sequence risk of returns arises because contributions and withdrawals change the amount participating in later periods. Therefore, the same set of returns can produce a different ending balance. To formulate the problem, one needs a goal, time horizon and cash-flow calendar rather than one average rate.[102](#source-cv-goals)
Example
In an educational model, starting with one hundred units, withdrawing ten after each year, and receiving returns of minus twenty percent and plus twenty percent leaves seventy-four. With the returns in the reverse order, the balance is seventy-eight. Without withdrawals, both paths produce ninety-six. The example specifies payment timing and does not model inflation or expenses.
Limitations
This arithmetic does not determine a sustainable withdrawal rate or the probability of exhausting capital. Additional assumptions about duration, composition and future outcomes are needed. A hypothetical history is not an actual or guaranteed return.[27](#source-market-performance) When comparing paths, retain completed payments, minimum balance and failures to meet the goal, not only an attractive amount at the end of the horizon.