Technology professionals often spend years focused on building wealth.
Through compensation, retirement savings, RSUs, and disciplined investing, many employees accumulate significant assets over the course of their careers.
As a result, most people naturally focus on one question:
"What return can I expect from my investments?"
While returns certainly matter, another factor is often overlooked:
When those returns occur.
This concept is known as sequence of returns risk, and it can have a meaningful impact on long-term financial outcomes, particularly as employees approach retirement or financial independence.
At Cypress Wealth Services, we believe understanding the risks within a financial plan is just as important as understanding the opportunities. Having that understanding can help individuals make more informed decisions with confidence and clarity.
What Is Sequence of Returns Risk?
Sequence of returns risk refers to the impact that the timing of investment returns can have on long-term financial outcomes.
Simply put, two investors may earn the exact same average return over time and still experience very different results depending on when those gains and losses occur.
The order, or sequence, of returns can matter.
This becomes especially important when withdrawals are occurring from a portfolio.
Why Tech Employees Should Care
Many Google employees spend decades accumulating wealth before eventually transitioning into retirement or financial independence.
During the accumulation phase, market declines can often be viewed differently.
If you are still earning income and investing regularly, periods of market volatility may provide opportunities to purchase investments at lower prices.
However, once withdrawals begin, the equation changes.
Instead of adding to the portfolio, assets may be distributed to support:
- Retirement spending
- Lifestyle expenses
- Major purchases
- Family goals
- Charitable objectives
The timing of market performance can become more significant because withdrawals may occur during periods of market decline.
A Simple Example
Imagine two investors with identical portfolios.
Both earn the same average return over twenty years.
However:
- Investor A experiences strong returns during the first several years and weaker returns later.
- Investor B experiences significant market declines during the first several years and stronger returns later.
Even though their average return is identical, their outcomes may differ substantially if withdrawals are occurring.
This is the essence of sequence of returns risk.
It is not just how much return you earn.
It is when those returns occur.
Why Concentrated Stock Positions Can Add Complexity
Many technology professionals have an additional consideration: Company stock.
For some employees, a significant portion of net worth may be connected to:
- Vested shares
- Unvested RSUs
- Future compensation
- Employment income
As retirement approaches, concentration risk and sequence of returns risk can become interconnected.
Understanding how various assets work together within an overall financial plan often becomes more important than focusing on any single investment.
Retirement Is More Than an Investment Conversation
When people hear sequence of returns risk, they often assume it is purely an investment issue.
In reality, retirement planning involves many interconnected decisions, including:
- Income planning
- Cash flow management
- Tax considerations
- Spending flexibility
- Diversification
- Estate planning
- Long-term care planning
A thoughtful retirement strategy often evaluates how these elements work together during different market environments.
Questions Every Tech Employee Should Consider
As retirement approaches, it may be helpful to ask:
- How would my plan respond to a significant market decline?
- What sources of income would continue regardless of market performance?
- How dependent am I on company stock?
- Do I have sufficient liquidity for unexpected expenses?
- How flexible is my spending plan?
- Have I evaluated risks as well as opportunities?
These conversations often become more valuable than attempting to predict future market returns.
Building Flexibility Into a Plan
One of the goals of comprehensive financial planning is creating flexibility.
Different families may approach this differently depending on their circumstances and objectives.
Planning discussions often include:
- Retirement income sources
- Cash reserves
- Social Security planning
- Diversification considerations
- Spending needs
- Long-term goals
The appropriate strategy will vary from one individual to another.
Frequently Asked Questions
What is sequence of returns risk?
Sequence of returns risk refers to the impact that the timing of investment returns may have on long-term financial outcomes, particularly when withdrawals are occurring.
Why is sequence of returns risk important for retirees?
Early market declines during retirement may affect a portfolio differently than declines that occur later because retirees are often withdrawing assets to support spending needs.
Does sequence of returns risk affect tech employees?
It can. Many technology professionals accumulate significant wealth through retirement accounts, taxable investments, and company stock, making retirement income planning an important consideration.
Can sequence of returns risk be eliminated?
All investing involves risk. Financial planning often focuses on understanding and preparing for various risks rather than attempting to eliminate them entirely.
Why should Google employees understand sequence of returns risk?
As wealth grows and retirement approaches, understanding how market volatility may interact with withdrawal needs can become an important part of long-term planning.
Final Thoughts
Building wealth is only one part of the financial journey.
Understanding how that wealth may support future goals is equally important.
Sequence of returns risk reminds us that retirement planning is not solely about pursuing higher returns. It is also about understanding how market conditions, spending needs, and financial decisions work together over time.
At Cypress Wealth Services, we believe thoughtful planning can help individuals and families navigate complexity and make informed decisions with confidence and clarity.
About the Author
Dermott Larkin is a Senior Wealth Advisor with Cypress Wealth Services based in Silicon Valley. He brings more than 25 years of investment management experience across equity and options trading, hedge funds, and institutional portfolio management. Dermott works closely with technology professionals, entrepreneurs, executives, and families to help them navigate complex financial decisions and pursue long-term financial independence.
Guiding Google is an educational series providing financial insights for Google employees and executives. Cypress Wealth Services is an independent registered investment adviser and is not affiliated with or endorsed by Google.
