Definition
Drawdown
Drawdown is the decline from a portfolio’s peak value to a subsequent trough.
Measure downside depth and recovery burden in risk-aware planning.
Last reviewed: 2026-03-03 | Review cycle: 120 days | Next review due: 2026-07-01
How It Works
Drawdown captures loss depth, which affects behavior and future return requirements for recovery.
Large drawdowns can have outsized effects on retirement plans with ongoing withdrawals.
Risk planning should consider both expected return and expected drawdown profile.
Examples
Scenario
Portfolio falls from $200,000 peak to $140,000 trough.
Outcome
Drawdown is 30%, and recovery requires more than 30% gain.
Scenario
Retiree withdraws during drawdown years.
Outcome
Recovery becomes harder because capital base is reduced by both losses and withdrawals.
Entities and Attributes
Entities
- peak value
- trough value
- recovery
- volatility
Attributes
- maximum drawdown
- recovery time
- risk tolerance
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Frequently Asked Questions
Is drawdown the same as volatility?
No. Volatility measures dispersion; drawdown measures peak-to-trough loss depth.
Why is drawdown critical for retirees?
Withdrawals during drawdowns can permanently damage sustainability.