Sequence of returns risk is the risk that bad market years come early in withdrawals and drain a portfolio, even if the average return is good.
Sequence of returns risk is the risk tied to the order in which good and bad market years arrive. While you are only saving, the order hardly matters: with the same returns the result is the same. Once you withdraw money from the portfolio regularly, a fall at the start does far more damage than the same fall at the end.
The reason is that after a fall you have to raise the same amount by selling more fund units at a low price. Those units will no longer recover with the market. So two portfolios with the same average return can end very differently: one runs out in 29 years, the other is larger after 30 years than at the start.
Protection against this risk includes a reserve of 2-3 years of spending in short-term bonds and on deposit, flexible payment rules, a small extra income in the first years after leaving work and a moderate share of stocks.
In detail, with examples: The 4% rule: how much you need to save to live off your investments
4% rule Safe withdrawal rate Portfolio rebalancing
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Where 4% came from, a capital table for different spending levels, the risk of bad early years, adjustments for the hryvnia and taxes, flexible strategies and the monthly contribution.