THE GLOSSARY · RISK
Maximum drawdown
Your portfolio hits a peak, then falls. The gap between the two is your drawdown. The trap is not the loss: it is what you have to win back to erase it.
By the Yoseri News desk · · 1 min read
Your portfolio climbs, hits a peak, then falls. The gap between that peak and the trough that follows is your maximum drawdown. It is measured as a percentage of your capital.
Here is where it gets awkward: climbing back does not cost what falling cost. Lose 50% and you have to gain 100% to get back to where you started. Lose 20% and 25% will do. Your intuition tells you the two should cancel out. It is wrong, and it is wrong every time.
| Drawdown suffered | Gain needed to get back |
|---|---|
| −10% | +11% |
| −20% | +25% |
| −33% | +50% |
| −50% | +100% |
Take a concrete case. A recession like 2008, applied to a $35,840 portfolio: the simulated loss reaches 33% on your investments. To get back to where you were, count on about 29 months if you keep contributing every month. And 47 months if you stop.
In Yoseri, you read your drawdown on the Investments page, with the confidence of the model that produced it right beside it. When the available history is too short, that confidence is low — and it says so.
Where the figures come from
The maths in this article starts from the assumptions written above. Run them again with your own figures — you should land on the same numbers.
Yoseri News is an educational publication. Nothing in this article is investment advice, a recommendation to buy or sell, or tax advice. Yoseri is registered as neither an adviser nor a dealer with any market authority.