Tom Sedoric and Casey Snyder

Originally published in 2015, this post has been updated to reflect recent developments in the markets.

The Federal Reserve announced in June it will hold the benchmark interest rate near zero through 2022 to safeguard the economy from the expected impacts of the coronavirus crisis. The Fed had predicted at that time the economy will shrink 6.5% in 2020. Just one week later, futures on the Dow Jones Industrial Average fell 150 points, or 0.6%, largely driven by early declines among airlines, retailers, and cruise lines, and the news of increased infection rates throughout the U.S. and China.

Jamie Dimon, chairman and CEO of JPMorgan Chase told CNBC that volatility will continue, and investors should be prepared.

“You’re going to have a much murkier economic environment going forward than you had in May and June, and you have to be prepared for that. We simply don’t know [what the outcome will be], and by the way – we’re wasting time guessing,” Dimon said.

Inflation, Volatility, and Planning Ahead

Inflation, or the lack thereof, has historically been the cause of lower interest rates from the Federal Reserve. Since the broad and global economic collapse of 2008-2009 courtesy of the credit and housing bubble, we have experienced two other significant deflation-inducing economic phases; the Eurozone crisis of 2011, and the 2015 market correction facilitated by an ongoing decline in commodity prices and a slowdown by our friends in China. There was evidence earlier this year that we are entering another deflationary period.

The point here is not to focus on inflation but to realize that what happened on the inflation front—and the COVID-19 outbreak—is extraordinary and unprecedented. Few could have factored these developments into their long-term retirement investment goals, particularly since humans like to extrapolate the past—also known as “recency bias.”

Sequence Risk: Timing Is Everything

In a world that has shifted from the standard defined benefit (i.e. your grandparent’s pension plan) to defined contribution (i.e. IRAs and 401(k) plans), awareness of what we can and can’t control is significant. The shift to more personal responsibility for funding our financial security has occurred simultaneously with a decline in real returns in many asset classes. It has also put more pressure on individuals to understand when and how to use their retirement savings and manage sequence risk.

Sequence risk refers to the possibility that the timing of contributions and withdrawals from a retirement account will have a negative impact on the overall rate of return available to the investor. It explains why two workers with similar salaries, the same number of years worked until retirement, and the same market investment return rates could potentially have vastly different final cash returns.

In a white paper on sequence risk, Peter Chiappinelli and Ram Thirukkonda, analysts from the advising firm GMO, offered this scenario:

“Even if an individual employee does everything ‘right’—participates in the (Defined Contribution) plan, defers income religiously, takes full advantage of the company match, and even gets his exact expected return from his investments—he can still fall victim to disappointing final wealth outcomes if the order of those returns works against him.”

In the GMO scenario titled “Who Ate Joe’s Retirement Money,” the final portfolio difference of around $300,000 between Joe and Jane was timing: Jane was in the accumulation phase during a phase of robust stock market appreciation while Joe missed a good part of that era because he started work more than a decade earlier (1954) than Jane (1967). In Joe’s situation, he worked and saved during a period of lower returns, and as a result, his asset base was less significant as he entered his distribution years. In this example, timing was everything.

Managing Sequence Risk in Your Financial Plan

We don’t control when investors were born, began to save, or if they delay savings due to a divorce or a period of conspicuous consumption. Personal and professional decisions, not market results, can impact the variability of outcomes. Advisors and their investors should not depend on alchemy to provide financial security. That was Mr. Madoff’s role, and we all know how that ended.

We have found that our most successful clients are not market dependent. In addition to a disciplined and diverse mix of investments, successful clients focus their behavior on what they can control:

• Their spending and savings habits.

• The sequence of behavior and decisions.

• Utilizing proper tax and asset allocation.

• Keeping an even emotional keel about day-to-day market fluctuations: don’t give in to “recency bias,” and avoid extrapolating past returns (whether generous or subpar) into the future.

Fate is often unkind, but our greatest tool in overcoming destiny is making a simple and disciplined plan, reviewing that plan regularly, and adjusting to circumstances and life events. Though we can’t change our birth order or many elements of our essence, we do have the ability to create outcomes more like Jane’s than Joe’s.


Asset allocation and diversification cannot eliminate the risk of fluctuating prices and uncertain returns nor can they guarantee a portfolio against loss in declining markets. This information has been obtained from sources deemed to be reliable but its accuracy and completeness cannot be guaranteed. The views expressed are those of Tom Sedoric – Partner, Executive Managing Director and Wealth Manager and D. Casey Snyder, CFP® - Partner, Senior Vice President and Wealth Manager, and are not necessarily those of Raymond James. Steward Partners Global Advisory LLC and The Sedoric Group maintain a separate professional business relationship with, and our registered professionals offer securities through, Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services offered through Steward Partners Investment Advisory, LLC.