Drawdown: Managing Losses in Your Investments

Drawdown: How to Manage the Maximum Drop in an Investment

Drawdown is the maximum percentage loss an investment experiences from its highest point (peak) to its lowest point (trough) before recovering.

Automatic Stop-Loss
- Set automatic sell orders when the price falls by a predetermined percentage (e.g., 10% from the purchase price).
- Practical example: For a stock bought at $100, a 10% stop-loss would trigger at $90.
Take-Profit to Lock In Gains
- Set profit targets to partially or fully exit the position.
- Helps protect accumulated profits before potential market corrections.
Periodic Rebalancing
- Adjust your portfolio quarterly/semiannually to maintain the original asset allocation.
- Reduces exposure to overvalued assets and reallocates to emerging opportunities.