What it is
A drawdown measures the decline in value from a historical peak in an investment, portfolio, or market index to its subsequent low point. It is expressed as a percentage and represents the maximum loss experienced over a specific period, regardless of whether the investor actually sold assets. Drawdowns are a common metric used to assess the risk and volatility of an investment, showing how much an asset's value can fall before it starts to recover.
Investors often track drawdowns to understand the potential downside risk of their holdings. For example, if a stock reaches $100, then falls to $70, and later recovers to $110, the maximum drawdown was 30% ($100 to $70). News reports might discuss the "maximum drawdown" of a specific fund or index during a market downturn, helping retail investors gauge the severity of market corrections or bear markets and the resilience of different asset classes.
Why it matters
Understanding drawdown helps you assess the historical risk and potential volatility of your investments, informing your risk management and portfolio decisions.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice