Lucky Joe vs Sad Sally: Why the Same Average Return Can Leave You Rich or Broke

Most people think that if two investors get the same average return, they should end up with the same amount of money. It feels obvious. But when you are withdrawing money to live on, the timing of returns matters just as much as the average.

This is called “sequence of returns risk”. To explain, let’s meet Lucky Joe and Sad Sally.

The Setup

• Both start with £250,000.

• Both withdraw £2,000 per month (£24,000 per year) to live on.

• Both invest for 10 years.

• Both average 15% annual returns over that time.

But:

• Joe gets his good returns early (lucky).

• Sally gets her bad returns early (unlucky).
  

The Numbers

Lucky Joe: Strong Early Years

Year	Return	Start Value	End Value After Withdrawals
1	+25%	£250,000	£288,500
2	+20%	£288,500	£320,200
3	+18%	£320,200	£346,000
4	+15%	£346,000	£362,900
5	+12%	£362,900	£366,400
6	+10%	£366,400	£360,800
7	+8%	£360,800	£346,500
8	+5%	£346,500	£326,000
9	-5%	£326,000	£281,700
10	-10%	£281,700	£225,000

Result: After 10 years, Joe still has around £225,000 left.

Sad Sally: Weak Early Years

Year	Return	Start Value	End Value After Withdrawals
1	-10%	£250,000	£201,000
2	-5%	£201,000	£162,000
3	+5%	£162,000	£145,100
4	+8%	£145,100	£135,600
5	+10%	£135,600	£130,600
6	+12%	£130,600	£131,900
7	+15%	£131,900	£135,100
8	+18%	£135,100	£140,200
9	+20%	£140,200	£147,000
10	+25%	£147,000	£158,000

Result: After 10 years, Sally has only £158,000 left.

The Lesson

Even though both had the same average return (15%), Joe finishes with £225,000 while Sally has just £158,000.

That’s a difference of nearly £70,000 - simply because Sally’s bad years came first, when her pot was biggest and she was withdrawing money at the same time.

This is sequence of returns risk:

• Losses early on can cripple your portfolio, because you’re taking withdrawals while your pot is shrinking.

• Gains early on protect you, because your pot is bigger when losses eventually come.

Think of two runners doing a marathon. Both average the same speed. But Joe runs the first half downhill and Sally runs the first half uphill.

Same “average,” very different results.

Why It Matters

For retirees, this risk is critical. You can’t control when markets are up or down. But you can control:

• How much risk you take.

• How you diversify.

• Having a plan so that early bad years don’t sink your retirement.

It’s not just about the average return. It’s about when the returns come.

Disclaimer

This article is provided for educational and informational purposes only and does not constitute financial advice, investment advice, or a recommendation to buy or sell any financial product. Past performance is not a reliable indicator of future results, and average returns do not guarantee actual outcomes. The examples of “Lucky Joe” and “Sad Sally” are illustrative scenarios only and do not reflect real investors. If you are considering making investment or retirement decisions, you should seek advice from a qualified, regulated financial adviser who can assess your individual circumstances. Alpesh Patel OBE www.campaignforamillion.com