What Is Drawdown? Meaning & Example
Definition
A drawdown is the decline from a portfolio's or asset's peak value to a later low. Maximum drawdown shows the worst peak-to-trough drop over a period.
Related terms
Volatility measures how much and how quickly prices move. Higher volatility means bigger swings, which bring both more opportunity and more risk.
CorrectionA correction is a decline of roughly 10% to 20% from a recent peak. Corrections are a normal part of market cycles and happen fairly often.
Risk ToleranceRisk tolerance is how much investment loss and volatility you are willing and able to accept. It depends on your finances, goals and emotional comfort.
What is Drawdown?
A drawdown is the decline from a portfolio's or asset's peak value to a later low. Maximum drawdown shows the worst peak-to-trough drop over a period.
Can you give an example of Drawdown?
A portfolio that fell from $100,000 to $75,000 before recovering had a 25% drawdown.