Glossary
Drawdown
A drawdown is the decline in an investment's value from its peak to its subsequent low, usually expressed as a percentage.
If a portfolio grows to $200,000, falls to $150,000, and later recovers, it experienced a 25% drawdown. Maximum drawdown — the worst such fall over a period — is one of the most concrete ways to describe an investment's risk, because it answers the question investors actually feel: how bad did it get?
Why it matters in practice
Recovering from a drawdown requires a larger percentage gain than the loss itself: a 25% fall needs a 33% rise, and a 50% fall needs a 100% rise. Asking "what drawdown could this portfolio plausibly see, and could I hold through it?" before investing is a more honest risk conversation than comparing average returns. The word also describes something different — the withdrawal phase of retirement — so context matters.
Related terms: Volatility · Bear Market · Risk Tolerance · Standard Deviation · Sequence-of-Returns Risk