If you are turning, you can wait.
- William Seah
- Aug 31
- 4 min read
Updated: 12 hours ago
When I was getting my driver's license, my instructor gave me a simple rule about the yellow box junction.
"If you're turning, you can wait in the box. If you're going straight, you can't."
That was the whole rule, as far as I knew. As an obedient rule following Singaporean, that was exactly what I did. When I was turning, I entered the box and waited without a second thought. When I was going straight, I held back. Simple.
I never questioned it.
Recently, by chance, I was reading through the Basic Theory of Driving handbook, and I came across the yellow box rule again. And there was something else there.
The book was explaining the rule for turning cars, and it was not as straightforward as I had thought. The turning vehicle is only in the clear if it is not obstructing traffic. A car turning, waiting in the box, blocking others from moving — that car is still committing an offence.
I realised I had never known the complete rule. The complete rule was that a turning vehicle may enter the box only if it does not block other vehicles. that nuance was missed entirely. I had been taught a version that had missed it completely.
An incomplete rule that is not explored fully does not feel like a wrong rule. It feels like knowledge. Incomplete knowledge, that is.
Knowing a rule without its nuances leads to a different kind of problem. Incomplete knowledge makes us more confident than we should be: unearned confidence.
One of the truths I hold about investing, one of the things I say very often, is that investing is a long-term endeavour. Stay invested. Weather the volatility. Don't flinch when the market falls, because over sufficiently long periods, the discipline of staying the course has tended to be rewarded. And unequivocally, the data bears it out.[1]
But it, too, has a nuance. The rule holds beautifully while you are accumulating. The rule holds while you are adding money, month after month, year after year. A market fall during accumulation is not a catastrophe; if anything, it is a chance to buy in cheaper, and time is on your side to let it recover. The long-term rule fits the accumulation phase like a glove.
But life happens. You retire with your hard-earned money invested, and you want to harvest the fruits. The accumulation is over. And something quietly changes without warning.
When you are drawing down, every withdrawal is, in effect, a short-term event. You no longer have the luxury of time, of waiting for the market to recover. You are withdrawing your assets to fund your life [2]. And if a serious downturn arrives early in your drawdown years, you are forced to sell more holdings while prices are low, to maintain your life, leaving you with less invested to recover when the market eventually turns. Two people can experience the exact same average return over their retirement and end up in very different places, purely because of the order in which those returns arrived. This has a name: "sequence-of-returns risk", and mathematically, as well as historically, it can do lasting damage to portfolios. If you are hit with bad years at exactly the wrong moment, usually at the start of withdrawals, your portfolio can be disastrous. You might outlive your money.
The nuance starts while you are withdrawing. It hits while you are taking money out, month after month, year after year.
"Stay invested for the long term" is true. It is just not the whole rule.
The person still accumulating and the person drawing down are following the same rule. But they are not in the same situation, and the invisible nuance is decisive for one of them. The risk you can shrug off while adding is not a risk you can ignore while withdrawing.
The two lessons (driving and investing) are not completely the same. But it's a reminder that nuances matter, and half rules can harm you more than we are aware. When driving, i always assumed that as the yellow cars above, I had right of way. With respect to sequence-of-returns risk, the issue rears its ugly head just when you have the least ability to respond to it. And there is no free fix. The solutions would entail holding steadier assets or keeping money in reserve for ready access, both likely to cost you some expected return. But ignoring the risk tends to cost more.
Pulling back, here is what stays with me. The rules that are most dangerous are not the ones we get wrong early enough, and find out; those get corrected. The dangerous ones are the rules we get mostly right, that serve us well enough for long enough that we never inspect them, even when things change. We forget that what's working well now is not the same as being complete.
The harder question I am trying to ask is not the reassuring one. The saying goes: don't fix what isn't broken. But sometimes what is broken is invisible. The better question is not "has this ever let me down?" It is "when does this let me down?"
I write on topics related to financial habits and decisions. Do explore my other articles at https://www.williamseah.com/blog if the ideas resonate. Drop me an email at reach.william@gmail.com or text me at 9673 1523 if you'd like to chat over coffee or whisky.
[1] Markets here refer to a diversified portfolio and not a single stock. a single stock (yet another nuance) or even a single industry might fall and never recover.
[2] Some might argue a dividend portfolio protects you against sequence-of-returns risk. I would respectfully disagree. A dividend is a nice payout, but it reduces the price of the equity by the same amount. A stock worth $100 that pays a $4 dividend sees its price drop to $96. For a stock that pays nothing, the same effect can be had by selling $4 worth of it — your total value invested remains the same either way. Not forgetting, a dividend leaves you subject to the whims of the company. The company can cut the payout anytime, which cuts your income, and if that forces you to sell holdings, it affects your future dividend stream too. A dividend income strategy on it's own does not negate sequence-of-returns risk.
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