Sequence of Returns Risk: Decomposing Real Returns into Nominal Returns and Inflation to Find the Real Villain

From ERN’s Ultimate Guide to Safe Withdrawal Rates — Part 15
From ERN’s Ultimate Guide to Safe Withdrawal Rates — Part 15

Precisely what I mean by SRR matters more than average returns: 31% of the fit is explained by the average return, an additional 64% is explained by the sequence of returns!

Moving away from real returns

Increasing R² for equity returns as we add more return data
Increasing R² for equity returns as we add more return data
R² for inflation doesn’t plateau as much as equity returns
R² for inflation doesn’t plateau as much as equity returns

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