What Is Drawdown?
The peak-to-trough decline during a specific period.
Usually expressed as a percentage.
Maximum drawdown is the largest drop your portfolio has experienced.
Why Drawdown Matters
Shows the real-world pain of investing during market declines.
Helps you assess whether you can emotionally handle a strategy.
Large drawdowns can devastate retirement portfolios if you're withdrawing.
Managing Drawdown Risk
Diversification reduces maximum drawdown.
Allocate to less volatile assets if drawdown tolerance is low.
Have a cash buffer to avoid selling during drawdowns.
