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Investing foundations

Lesson 65 · Written for kid, teen, and little

Drawdowns: Falling and Climbing Back

A drawdown is how far something has fallen from its highest point.

The idea

A drawdown is the drop from the highest point something reached down to the lowest point after it. The tricky part is the math, because falling and recovering are not mirror images. If $100 falls 50% to $50, getting back to $100 means gaining $50 on top of $50 — that is a 100% gain, not a 50% one. This is why avoiding enormous falls tends to matter more than chasing enormous gains. 📉

A

Words to know

5

Drawdown

How far something has fallen from its highest point. From $100 down to $60 is a 40% drawdown.

Peak

The highest value something reached before it fell. That $100 was the peak.

Trough

The lowest point reached during a fall. The $60 at the bottom is the trough.

Recovery

Climbing back up to the old high point. From $60 you need a 67% gain to get back to $100 — bigger than the 40% you lost.

Break even

Getting back to exactly where you started. Back at $100, you have neither gained nor lost.

Try it — no accountTrue or false

True or false? Swipe each card the way you think it goes.

Card 1 of 4

A drawdown is the fall from a high point down to a low point.

Swipe the card — or tap.

In the full lesson

  1. 1True or false
  2. 2Work out the number
  3. 3Make the call

Vine has 107 lessons like this one, each written three ways so a 7-year-old and a 17-year-old both get a version that fits.

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