Could someone explain this concept to me please?
FISH
What does Draw down mean exactly?
Moderator: Global Moderator
Re: What does Draw down mean exactly?
Here is a simple explanation from wikipedia.
Actually, the first sentence is enough for me...
Actually, the first sentence is enough for me...
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Re: What does Draw down mean exactly?
Assuming you are referring to the term as it applies to the PP, this may be the period in your life when you will be living off your accumulated wealth. It follows the accumulation phase where you will be adding money to your PP. For most people the more common term is "retirement." When you are in draw down you are withdrawing money from your PP to live on. For many people the amount taken out may be equal to, or even slightly exceed anticipated gains and so the PP may slowly shrink over time.
See above for other possible definitions.
See above for other possible definitions.
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Re: What does Draw down mean exactly?
Got it, thank you
Re: What does Draw down mean exactly?
Actually I seem to recall the term being often used here in accordance with the strict wiki definition, as in "the PP has experienced significant drawdowns in the past" (the first sentence of the wiki I mean, I have no clue what the equations mean).Ad Orientem wrote: Assuming you are referring to the term as it applies to the PP, this may be the period in your life when you will be living off your accumulated wealth. It follows the accumulation phase where you will be adding money to your PP. For most people the more common term is "retirement." When you are in draw down you are withdrawing money from your PP to live on. For many people the amount taken out may be equal to, or even slightly exceed anticipated gains and so the PP may slowly shrink over time.
See above for other possible definitions.
But I have also heard it used as you describe, simply withdrawing funds during retirement.
So I guess you have to consider the context.
Re: What does Draw down mean exactly?
During the accumulation phase, "max draw down" refers to the maximum loss a portfolio or other investment might suffer over some period of time. Investopedia explains it as follows:
Once you're in retirement (or whenever you begin withdrawing funds), you're said to be in the "draw down" phase, which is simply another way of saying that you're now withdrawing money, rather than contributing money.Definition of 'Drawdown'
The peak-to-trough decline during a specific record period of an investment, fund or commodity. A drawdown is usually quoted as the percentage between the peak and the trough.
Investopedia explains 'Drawdown'
A drawdown is measured from the time a retrenchment begins to when a new high is reached. This method is used because a valley can't be measured until a new high occurs. Once the new high is reached, the percentage change from the old high to the smallest trough is recorded.
Drawdowns help determine an investment's financial risk. Both the Calmar and Sterling ratios use this metric to compare a security's possible reward to its risk.
Source: http://www.investopedia.com/terms/d/drawdown.asp
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