Drawdown is expressed as a percentage, showing how much the value has dropped from its highest point

Understanding drawdown: What it means for your investment strategy

1.Drawdown is the decline in the value of an investment from its peak to its lowest point over a specific period.

2.It is usually expressed as a percentage, showing how much the value has dropped from its highest point.

3.If the investment value is Rs.10,000 and it drops to Rs.9,000, before moving above Rs.10,000, then the investment has witnessed a 10% drawdown.

4.Understand the risk and downside volatility of an investment. A higher drawdown indicates greater risk.

5.A drawdown of 20% requires a 25% return to its old peak and a drawdown of 50% requires a 100% return to recover the peak.

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Content courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

This story originally appeared on: India Times - Author:Faqs of Insurances