Drawdown
A drawdown is the drop from a portfolio’s previous high to a later low.
Why this matters
Drawdowns show how painful losses can get, which helps set realistic expectations and risk levels.
Simple example
If your portfolio falls from $100,000 to $80,000, that is a 20% drawdown.
Common mistakes
- Ignoring drawdown risk when choosing investments.
- Assuming a portfolio that rose fast cannot fall hard.
- Panicking at normal drawdowns for your strategy.