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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.

Related terms

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Frequently Asked Questions

What does Drawdown mean?

A drawdown is the drop from a portfolio’s previous high to a later low.

Why does Drawdown matter?

Drawdowns show how painful losses can get, which helps set realistic expectations and risk levels.

What is a simple example of Drawdown?

If your portfolio falls from $100,000 to $80,000, that is a 20% drawdown.

What is a common mistake with Drawdown?

Common mistakes include: Ignoring drawdown risk when choosing investments. Assuming a portfolio that rose fast cannot fall hard. Panicking at normal drawdowns for your strategy.