Mumbai, Jan. 20 -- The order of investment returns can significantly affect the final portfolio outcome, even if the long-term average return remains the same-this is called sequence of returns risk. It is most relevant during periods when an investor is adding to or withdrawing from a portfolio, rather than simply holding a lump sum.

However, there are ways to mitigate this risk. A well-thought-out asset allocation can help cushion the impact of negative equity returns by allocating capital to assets with low correlation with equities.

In theory, two portfolios earning the same average return over a period should end with the same value. In reality, that is not always the case. When returns arrive in a different sequence-strong years f...