Investing term

What is Drawdown?

The peak-to-trough fall in an investment's value before it recovers.

A drawdown is the drop from an investment's peak value to its lowest point before it recovers, usually quoted as a percentage. It's the most visceral measure of risk — the actual paper pain you have to sit through. Knowing the typical drawdowns of your holdings ahead of time is what lets you hold on instead of panic-selling at the bottom.

For example

A fund that falls from $10,000 to $7,000 before recovering suffered a 30% drawdown — the gut-check stretch where many investors bail at exactly the wrong moment.

Drawdown is taught hands-on in Stage 3 — Know Yourself: Risk Tolerance & Time Horizons.

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Related terms

Allocation driftThe slow movement of your portfolio away from its target mix as market values change.Asset allocationThe mix of stocks, bonds, and cash in a portfolio, expressed as percentages.Bear marketA prolonged market decline, conventionally defined as 20%+ from recent highs.Glide pathA planned shift in allocation over time — typically moving from stocks toward bonds as retirement approaches.
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