Drawdown
A fall in value from a previous high, for example a 30 % drop in the stock market.
World shares fell about 50 % in 2008 and 2009. Planning for drawdowns, with a cash buffer and a mix you can hold, protects your plan more than chasing returns.
Tools that use it
Related terms
- Sequence-of-returns riskThe risk that bad market years early in retirement do lasting damage, because you sell investments at low prices to live.
- VolatilityHow much an investment’s value swings from year to year.
- Emergency fundCash for unexpected costs or lost income, usually three to six months of essential spending, kept apart from investments.
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Investing
Sequence risk: why the first ten years of retirement decide
Two retirees, the same average return and very different outcomes. How the order of returns can break a plan and what early retirees can do about it.