GLOSSARY TERM
Drawdown
A drawdown is the decline in the value of an investment or portfolio from its previous peak to its lowest point before it recovers.
What does this mean in practice?
Drawdown shows how much an investment has fallen during a bad period. It is usually written as a percentage. This helps investors understand not only how much an investment can grow, but also how much it can drop along the way. A larger drawdown means a deeper fall and usually a more difficult period emotionally.
Example
If your portfolio grows to €10,000 and later falls to €8,000 before rising again, the drawdown is 20%. That means the portfolio lost one fifth of its value from its highest point.
Why it matters
Drawdown matters because long-term investing is not only about returns, but also about staying calm during declines. Understanding drawdown helps you choose a portfolio you can realistically hold through difficult periods.
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