What is drawdown recovery?
A drawdown reduces the balance from which you earn your next return. Recovering to the starting balance therefore requires a larger percentage gain than the percentage lost.
Enter your starting balance
Set Starting balance to the amount before the drawdown. This provides the reference for the dollar loss and the profit needed to recover.
Choose the drawdown percentage
Adjust Drawdown to the loss percentage you want to examine. Read the remaining balance and Required recovery return.
Compare different losses
Use the recovery curve and quick reference to compare drawdown levels. A 20% loss needs a 25% gain to recover; a 50% loss needs a 100% gain.
Worked example
Starting with $10,000, a 30% drawdown leaves $7,000. You need $3,000 to return to $10,000. Because $3,000 is about 42.9% of $7,000, the required recovery return is 42.9%, not 30%.
The calculation
Required recovery return = drawdown ÷ (1 − drawdown), using the drawdown as a decimal. This describes the gain needed from the reduced balance; it does not estimate how long recovery will take.