Transparent method
The formula
Worked example
Example inputs
How to interpret the result
The math behind recovering from a loss is asymmetric in a way that catches people off guard. A 50% loss requires a 100% gain just to get back to even, not a 50% gain, because the smaller remaining balance after a large loss needs a proportionally much larger percentage increase to climb back to the original amount.
Before you rely on it
What to check
Calculate the actual percentage gain required to recover from a specific drawdown rather than assuming the recovery percentage mirrors the loss percentage.
The common error
Where people go wrong with maximum drawdown calculator
Assuming a loss and its recovery are symmetric percentages, that a 50% loss just needs a 50% gain to break even. The math requires a considerably larger percentage gain than the loss percentage to fully recover, and the gap widens as the loss gets larger.
Sensitivity evidence
How peak portfolio value changes the drawdown
| Peak portfolio value | Drawdown | Gain needed to recover |
|---|---|---|
| $120,000 | -12.5% | 14.3% |
| $135,000 | -22.2% | 28.6% |
| $150,000worked example | -30.0% | 42.9% |
| $165,000 | -36.4% | 57.1% |
| $180,000 | -41.7% | 71.4% |
Every input, tested
Which input moves the drawdown most
| Input | Tested from | To | Drawdown at each end | Swing |
|---|---|---|---|---|
| Peak portfolio value | $135,000 | $165,000 | -22.2% to -36.4% | 14.1% (47%) |
| Trough portfolio value | $94,500 | $115,500 | -37.0% to -23.0% | 14.0% (47%) |
| Current or recovered value | $126,000 | $154,000 | -30.0% to -30.0% | none |
Two variables at once
Drawdown by peak portfolio value and trough portfolio value
| Peak portfolio value \ Trough portfolio value | $84,000 | $105,000 | $126,000 |
|---|---|---|---|
| $120,000 | -30.0% | -12.5% | 5.0% |
| $135,000 | -37.8% | -22.2% | -6.7% |
| $150,000 | -44.0% | -30.0% | -16.0% |
| $165,000 | -49.1% | -36.4% | -23.6% |
| $180,000 | -53.3% | -41.7% | -30.0% |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Peak portfolio value | $150,000 |
| Trough portfolio value | $105,000 |
| Current or recovered value | $140,000 |
| Drawdown | -30.0% |
| Gain needed to recover | 42.9% |
Where the inputs come from
Peak value is the highest point the portfolio reached before falling, and trough value is the lowest point after it. Current or recovered value is what it is worth now. Read the peak and trough from an account history chart or statements, not from memory. Use total portfolio value including reinvested income, since price-only charts understate recovery.
When the result stops applying
Maximum drawdown depends on the period examined; a longer history usually includes a worse one. It reports one event, not how often losses happen or how long recovery took. A strategy that has not yet faced a severe market will show a low drawdown that is not reassuring. It does not include withdrawals during the decline.
What to compare it with
Pair it with the Sharpe and Sortino ratios for a fuller risk picture, and the investment volatility calculator for the typical swing. If a loss is tolerable only with cash reserves, the investment withdrawal calculator shows how retirement withdrawals during a decline damage a portfolio.
People also ask
Frequently asked questions
Why does a loss need a larger gain to recover?
Because the gain applies to a smaller balance. A 50% loss needs a 100% gain, since $50 must double to return to $100.
How long does recovery take?
It varies. Some drawdowns recover within months and others take years. The 2008 decline in the US stock market took roughly four to five years to recover in total return terms.
What drawdown should I be ready for?
A stock-heavy portfolio can fall 30% to 50% in a severe bear market. Plan for a loss you could sit through without selling.