Maximum drawdown is the largest percentage fall of your portfolio’s return index from any historical peak to the subsequent low. It answers the most visceral risk question: “how bad did it get?”
Lemma Analysis computes it on a flow-adjusted index, so withdrawing cash does not fake a crash and topping up does not mask a real one — it is pure investment drawdown.
Computed on monthly closing points, expressed as a negative percentage.
A portfolio index that climbs to 180, slides to 117 over eight months, then recovers, has a maximum drawdown of −35%. For context on monthly closes: SPY fell about −20% in 2020 and about −50% in 2008–09.
Recovery is asymmetric — the deeper the hole, the steeper the climb out:
Reference bands for a long-term equity portfolio:
| Max drawdown | Reading |
|---|---|
| 0…−10% | conservative — or the portfolio has not yet met a bear market |
| −10…−20% | moderate |
| −20…−35% | equity-market norm for a 100% stock portfolio |
| −35…−50% | aggressive or concentrated |
| < −50% | very aggressive; recovery needs a +100% gain |
Drawdown is the risk number that actually tests investor behavior: portfolios are usually abandoned at the bottom of one. Use it to check whether your allocation matches the losses you can genuinely sit through.
Measured on monthly closes, so sharp intra-month dips are invisible — the true peak-to-trough loss can be deeper than shown. It is also a single worst case: a portfolio that has simply never lived through a bear market will show a flattering number.