This seems to equate sequence of return risk with concentration risk. While I can see extreme concentration risk leading to sequence of return risk they are not entirely the same, and it's not clear to me that the current concentration in the S&P500 reaches the level of significantly increasing sequence of return risk. To me the best way to mitigate sequence of return risk is proper asset allocation between types of assets (equities, bonds, cash) coupled with a withdrawal plan that is suitable for your timeframe. Managing the sector allocations of my stock portfolio seems secondary to that.
The comparison starts in 2003 because he was comparing funds and not indexes. The Invesco equal weight fund didn't start until 2003. The whole point of the article is that an index is not a fund and that a fund based on an index may significantly underperform the index. I'm open to the idea that an equal weight fund may mitigate concentration risk and possibly sequence of return risk vs a market weight fund- but I haven't seen or found any evidence that it actually does.
4% is the answer to a very specific question under a certain set of assumptions. Assumptions: Asset allocation: 50/50 rebalanced every year.
Time horizon 30 years
Withdrawal rate: X% of initial balance increased with inflation every year. Question: Based on backward looking data, what is the maximum withdrawal rate, X, that guarantees that the portfolio will not be depleted at the end of 30 years. Answer: About 4% This is a very conservative number, because there are only 2 or 3 30 year periods in which one's portfolio would be exhausted at a 4% initial withdrawal rate. As such, there are more sophisticated withdrawal and asset allocation management strategies which allow for increased portfolio spending, while managing the risk of your portfolio being depleted over your lifetime. That said - the 4% guideline is a good place to start in your retirement planning. In the accumulation phase it's a good way to measure your retirement savings needs (25x your expected retirement spending needs after accounting for social security and any pension). As you approach retirement and your planning gets (hopefully) more detailed, the 4% guideline can give you some clarity. If your required portfolio withdrawal rates are significantly less than 4% - then you can pursue a fairly simple asset allocation and withdrawal strategy and feel confident. If it is greater than 4% you should give some thought to one of the more sophisticated withdrawal strategies.
Here is also a follow-up on Equal weight vs Market Weight S&P 500 index funds. https://www.wsj.com/finance/investing/your-investing-strategy-is-great-so-long-as-you-dont-actually-trade-anything-3a3d2b09?st=u5more&reflink=desktopwebshare_permalink Both of these are by Jason Zweig at WSJ - he's one of the reasons I still keep my subscription.
Here is a nice article from the WSJ that pokes some holes in this argument. https://www.wsj.com/finance/investing/the-big-scary-myth-stalking-the-stock-market-29aedf50?st=B5XmUc&reflink=desktopwebshare_permalink
I feel the same way - stock market volatility is not necessarily risk - it depends on goals and timeline. I think alot of this stems from a lack of understanding about what risk is and how to assess it. My definition of risk is anything that could prevent you from achieving your goals. This means before you can assess risks you need a goal (what do you want to achieve and when?) and a plan (how are you going to get there)? to achieve that goal. Only then can you really start to assess risk (what could go wrong?) and mitigate it. For investors with long term goals - volatility is truly an opportunity. In that situation the biggest risk isn't the volatility itself but one's adverse emotional response to it. Once you learn to control that instinctive fear of a market downturn or understand the root cause of that fear and address it, you will be in much better shape.
Comments
This seems to equate sequence of return risk with concentration risk. While I can see extreme concentration risk leading to sequence of return risk they are not entirely the same, and it's not clear to me that the current concentration in the S&P500 reaches the level of significantly increasing sequence of return risk. To me the best way to mitigate sequence of return risk is proper asset allocation between types of assets (equities, bonds, cash) coupled with a withdrawal plan that is suitable for your timeframe. Managing the sector allocations of my stock portfolio seems secondary to that.
Post: Sector Fund by Stealth
Link to comment from March 13, 2026
The comparison starts in 2003 because he was comparing funds and not indexes. The Invesco equal weight fund didn't start until 2003. The whole point of the article is that an index is not a fund and that a fund based on an index may significantly underperform the index. I'm open to the idea that an equal weight fund may mitigate concentration risk and possibly sequence of return risk vs a market weight fund- but I haven't seen or found any evidence that it actually does.
Post: Sector Fund by Stealth
Link to comment from March 13, 2026
4% is the answer to a very specific question under a certain set of assumptions. Assumptions: Asset allocation: 50/50 rebalanced every year. Time horizon 30 years Withdrawal rate: X% of initial balance increased with inflation every year. Question: Based on backward looking data, what is the maximum withdrawal rate, X, that guarantees that the portfolio will not be depleted at the end of 30 years. Answer: About 4% This is a very conservative number, because there are only 2 or 3 30 year periods in which one's portfolio would be exhausted at a 4% initial withdrawal rate. As such, there are more sophisticated withdrawal and asset allocation management strategies which allow for increased portfolio spending, while managing the risk of your portfolio being depleted over your lifetime. That said - the 4% guideline is a good place to start in your retirement planning. In the accumulation phase it's a good way to measure your retirement savings needs (25x your expected retirement spending needs after accounting for social security and any pension). As you approach retirement and your planning gets (hopefully) more detailed, the 4% guideline can give you some clarity. If your required portfolio withdrawal rates are significantly less than 4% - then you can pursue a fairly simple asset allocation and withdrawal strategy and feel confident. If it is greater than 4% you should give some thought to one of the more sophisticated withdrawal strategies.
Post: Forget the 4% rule.
Link to comment from March 11, 2026
Here is also a follow-up on Equal weight vs Market Weight S&P 500 index funds. https://www.wsj.com/finance/investing/your-investing-strategy-is-great-so-long-as-you-dont-actually-trade-anything-3a3d2b09?st=u5more&reflink=desktopwebshare_permalink Both of these are by Jason Zweig at WSJ - he's one of the reasons I still keep my subscription.
Post: Sector Fund by Stealth
Link to comment from March 11, 2026
Here is a nice article from the WSJ that pokes some holes in this argument. https://www.wsj.com/finance/investing/the-big-scary-myth-stalking-the-stock-market-29aedf50?st=B5XmUc&reflink=desktopwebshare_permalink
Post: Sector Fund by Stealth
Link to comment from March 11, 2026
I feel the same way - stock market volatility is not necessarily risk - it depends on goals and timeline. I think alot of this stems from a lack of understanding about what risk is and how to assess it. My definition of risk is anything that could prevent you from achieving your goals. This means before you can assess risks you need a goal (what do you want to achieve and when?) and a plan (how are you going to get there)? to achieve that goal. Only then can you really start to assess risk (what could go wrong?) and mitigate it. For investors with long term goals - volatility is truly an opportunity. In that situation the biggest risk isn't the volatility itself but one's adverse emotional response to it. Once you learn to control that instinctive fear of a market downturn or understand the root cause of that fear and address it, you will be in much better shape.
Post: Volatility is your Best Friend
Link to comment from March 6, 2026
Jonathan covered that here: What Withdrawal Rate? - HumbleDollar
Post: RMDs, account withdrawals, 4% simplified- MAYBE?
Link to comment from January 20, 2026
Nothing wrong with splitting the difference and doing both, keep half in money market and half in CD's.
Post: Should I Lock in CD Rates Now or Stay in Money Market?
Link to comment from January 15, 2026
That's just not correct. For example see What Returns Are Safe Withdrawal Rates REALLY Based Upon?
Post: Considering a Lost Decade When Retirement Planning
Link to comment from January 15, 2026
4th link: The Big Picture This link is reference in the 3rd link.
Post: Customizing the Safe Withdrawal Rate
Link to comment from January 14, 2026