Last checked 3 September 2026
A drawdown is the decline from a peak value to a subsequent trough, expressed as a percentage of the peak, and maximum drawdown is the largest such decline over a period.
Drawdown measures the part of an investment record that people actually experience. Two portfolios with identical annual returns can be entirely different things to live with if one fell 12% along the way and the other fell 45%.
It is the natural companion to CAGR, which by construction hides the path. Quoting a growth rate without a drawdown figure describes the destination and says nothing about the journey.
Applied to personal net worth, drawdown is usually driven by something specific rather than by markets: a house purchase, a tax bill, a period of unemployment. Naming the cause is more useful than the percentage on its own.
(trough value − peak value) ÷ peak value × 100
Always negative. Recovery requires a larger percentage gain than the loss: −50% needs +100% to get back.
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