A drawdown measures an investment’s decline from a prior peak to a later low. Its meaning depends on the asset, time horizon, and surrounding market context. section 10.1
Interpret drawdowns by comparing:
- Magnitude: an S&P 500 decline of 11.15% reduced a $100,000 index-fund holding by $11,150. section 10.1
- Asset type: single stocks can be more volatile than broad indices, so the same percentage decline carries different implications. section 10.1
- Time horizon: long historical charts reveal whether a sharp fall resembles earlier crises and whether later recovery occurred. section 10.1
Historical comparison
Major recorded declines include Black Monday at −24.57%, the COVID-19 pandemic at −13.93%, Lehman Brothers’ collapse at −12.43%, and the 2025 US tariff announcement at −10.53%.
