Max drawdown
Glossary · Core metrics
On this page
Definition
The largest peak-to-trough decline in portfolio value, expressed as a percentage.
A max drawdown of -50% means the portfolio lost half its value from its highest point before recovering.
Concept explainer
Read the transcript
0:00How deep was the hole, and how long did it take to climb out?
0:06Stocks make up sixty percent of this path. Bonds make up the remaining forty percent.
0:11Maximum drawdown measures the deepest fall from a peak to the trough that follows, expressed as a percentage of that peak.
0:19The path reaches its peak in October 2007. The following trough arrives during the financial crisis in March 2009. At that point, the mix is thirty five and a half percent below its peak. Its peak value was almost eleven thousand dollars. The trough value was seven thousand dollars. The mix regains its old peak in November 2010. That recovery took just over three years.
0:43The table gives the depth, while the dates around it say how long the hole lasted.
0:48A loss comes off a larger base, but the recovery starts from the smaller value that remains. This imbalance makes every climb back larger than the loss. The curve shows the percentage gain required to recover each loss.
1:02The stock-and-bond portfolio fell thirty five point five percent. Returning to its old peak required a fifty five percent gain.
1:13In Portfolio Backtest, the drawdown metric sits in the summary table beside ending value. This example compares two leveraged funds over one shared window from 2010 through 2025.
1:28The two-times fund's deepest fall was fifty nine percent. The three-times fund fell nearly seventy seven percent.
1:35Both drawdowns begin during the crash of early 2020. The table shows a difference of about seventeen and a half percentage points. That difference creates an even wider gap in the gains needed to recover.
1:49The two-times fund's fifty nine percent fall required a recovery gain of one hundred forty six percent. The three-times fund's seventy seven percent fall required a recovery gain of more than three hundred percent. Cutting the loss in half can reduce the required recovery gain by far more than half. Once the loss exceeds about fifty percent, the required recovery gain accelerates sharply. This imbalance is why the drawdown column belongs next to the return column.
2:17Read return and loss depth together to see both the destination and the deepest hole along the way.