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The peak-to-trough decline of an investment, portfolio, or fund during a specific period, usually expressed as a percentage.
Maximum drawdown is a key risk metric that measures the worst loss an investor would have experienced. For example, if a portfolio grew from $100,000 to $150,000 and then fell to $120,000, the drawdown is 20% (from $150K to $120K). The S&P 500's maximum drawdown during the 2008 financial crisis was roughly 57%. Drawdown is particularly important for retirees because a large drawdown early in retirement can permanently impair a portfolio (known as sequence-of-returns risk). Recovery from a 50% drawdown requires a 100% gain just to break even.