Drawdown
How far a value falls from its last high.
A drawdown measures how far an investment or portfolio has fallen from its highest point before it recovers. The biggest one is called the maximum drawdown.
Why it is worth knowing
Returns tell you where you ended up. Drawdown tells you how rough the ride was. Knowing that a plan once fell 50% helps you decide whether you could have held on.
Losses and gains are not symmetrical: after a 30% drop you need a 43% gain to get back to even.
ExampleA portfolio that peaks at $10,000 and falls to $7,000 has a 30% drawdown.