When I first started to travel to go fishing, I was nearly obsessed with the weather. I felt the weight of my limited time and finances and wanted to do everything I could to have the highest probability of an enjoyable trip, including good weather. I was in the process of booking two trips, and I was waffling on the dates because of the seasonal weather patterns. Specifically hard rain. So, I did what any rational angling fanatic with a background in statistics would do. I looked at the averages. The probability of rain. Knowing the faults in such thinking I did it anyway. The numbers told me that September would be the best month of year to go. On both trips. That wasn’t going to work so I booked one for July and the other for September. (many months were automatically eliminated due to fishing seasons) Well, one worked out, the other didn’t. The trip in September that had very little chance of rain got rained out. That average didn’t apply to my personal experience.
Oddly enough, investing for retirement can cause us to face the same type of risk. It’s called sequence of returns risk. Sure, the markets all have long-term averages just like rainfall. But if someone’s trip into retirement ends up around a significant down(pour)turn in the market the probability of success drops disproportionately. You could get rained out.
Unlike a fishing trip, establishing a plan a year in advance can help mitigate the impact of what is known as sequence of returns risk. Plan for your financial future with the same intent you would your next adventure. One, you can have a positive influence on the outcome. And two, unlike a vacation, there often isn’t a chance to rebook.